Looking East: Asian investors are in the midst of ‘a sustained shift toward a focus on emission’

While the race to net zero seems to be more of a priority for investors in Europe, with Scandinavian, Dutch and German pension funds often cited as leading the pack, Asian asset owners are increasingly paying attention to climate-related issues, risks and opportunities.

To find out which green finance issues keep Asian investors awake at night, Net Zero Investor checked in with Chune Loong Lum, a Hong Kong-based asset management partner at international law firm Ropes & Gray.

Loong Lum shared they key themes that came out of some recent conversations with investor clients across Asia.

"Firstly, I am seeing a sustained shift towards a focus on emissions, rather than fossil fuels themselves," he shared.

"Put another way, rather than merely avoiding investments in fossil fuel businesses, investors are actively pursuing opportunities involving decarbonisation and energy storage technologies." 

This is in part catalysed by the slew of governmental support and fiscal incentives currently available or anticipated, he stressed.

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For example, in April of this year, the Monetary Authority of Singapore launched its Finance for Net Zero Action Plan, to support net-zero transition and decarbonisation activities in Singapore and the wider region. It expanded the scope of MAS’ Green Finance Action Plan – which was launched in 2019 – to include transition finance.

Moreover, together with the People’s Bank of China, MAS also announced the establishment of the China-Singapore Green Finance Taskforce to deepen cooperation and facilitate greater public-private sector collaboration as Asia transitions to a low-carbon future.

Meanwhile in neighbouring Malaysia, the recently launched Sustainable Investing Standards provide guidance for government-linked investment companies to incorporate sustainability considerations into the investment process.

"We are observing clients increasingly coalescing around the concept of climate adaptation, or adapting to the consequences of global warming, asking questions such as how a particular investment is positioned to navigate climate-related challenges such as rising sea levels. and increasing prevalence of extreme weather patterns," Loong Lum said.

"Net zero questions are rising in importance as asset owners evaluate investment opportunities and monitor and manage their portfolios," he added.

Not only are investors asking more questions, but the questions they are asking are more "pointed and probing", Loong Lum noted.

Also, "investors are increasingly asking for those diligence questions to be supported by representations and warranties in the underlying transaction documentation," he said.

Risks

Finally, Loong Lum also sees a clear shift towards a focus on the materiality of particular net zero-related risks for an investment, rather than on less clearly defined long-term aspirational goals.

"By considering net zero factors to make an informed assessment of potential returns and risks, investors transform the transition from a value statement about policy goals to a pecuniary one," he explained.

Even as the maturation of a net zero-integration into the investment process for many of Asia's mega investors continues, one common question mark is how U.S. politics may factor into any global approach.

"Notably, we continue to have clients speculate about the potential impact of anti-net zero and anti-ESG voices in the United States, particularly going into the 2024 election cycle," Loong Lum concluded.

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