Taking Stock represents a first step toward filling a very large analytical gap in the Asian investment literature. This gap is striking given that Asia is the fastest growing source of sustainability risks globally, due to its rapid growth in economic activity and in associated environmental, social, and governance (ESG) impacts. Indeed, developed market companies increasingly frame their discussion of these risks in terms of their activity in Asia. Despite the growing pressure to evaluate ESG issues in developed markets, Asian investors have had comparatively few benchmarks for rating performance because of more subdued enforcement of regulatory standards and less participation from minority shareholders.
The reports highlight three important key, cross-cutting risks affecting the Asian equity investment outlook generally:
Focused analysis of ESG risks is hampered by limited disclosure
Government ownership and control of many large listed Asian companies is a critically important variable in ESG performance
Globalization and market development are amplifying ESG trends linked to China and India
The reports present country, company, and market information as well as case studies that support the following investment themes:
Environmental issues appear to dominate the Asian investment picture, but medium-term incentives for change are emerging on a case-by-case basis, not systematically
Better governance standards are a key facilitator for improving ESG performance
Rising public expectations are a growing force for regulatory change
Taken together, the sector reports raise important questions about how to shape investment strategies, reflecting the range of risks and opportunities that sustainability analysis of Asian equities can highlight. This is particularly relevant for large cap investors versus those who favor innovative, small companies. It is also relevant for investors with strong country allocation disciplines.