Private capital is booming in the Asia-Pacific, and so is sustainable investing. The region now leads the world in bringing these two investment strands together, with a strong emphasis on shared values between private asset owners and managers.
The BNP Paribas ESG Global Survey 2021 shows that 43% of Asia-Pacific (APAC) investors incorporate ESG (environmental, social and governance goals) into private market assets, compared to 38% of respondents globally. The approach varies by country. Investors in China tend to focus on incorporating ESG into private equity and debt, as do those in Singapore, whereas in Australia the focus is on real estate investments.
Why are ESG and private capital converging in APAC? Improving the ESG profile of an asset is likely to increase its future value, given that more and more global capital is chasing ESG opportunities. And private markets grant APAC’s investors greater power to define the ESG profile of the assets they are acquiring, because a small number of investors participate in a single deal, so each holds a proportionately larger ownership stake than do investors in listed companies.
Aligned on alignment
The survey also shows that APAC investors place significant importance on alignment between the ESG agendas of asset owners and managers. “ESG considerations form an integral part of our Alternatives’ team’s investment process. When we look at investments in private equity funds and co-investments, our due diligence includes an assessment of ESG performance, potential risks and scope for improvement. Where applicable, we will seek to engage and influence the private equity managers to improve underlying businesses for long-term sustainability” says Michael Woolley, director, sustainability at Eastspring Investments.
Discussing the way ESG in alternatives is handled by the Australian superannuation fund, UniSuper Governance and Sustainability Manager Sybil Dixon says: “We seek to have good alignment with our private market managers; we are quite explicit in how we expect them to manage ESG risks. We have a small number of private market mandates that provide us a focused range of opportunities, rather than allocating to a large number of funds.”
At a time of increasing urgency around climate action, private capital is going to play a vital role in supporting the race to net zero. APAC’s early lead may well be a function of this strong belief in making sure that asset owners and managers are on the same ESG page.