As climate change is taking a centre stage in ESG investing, asset managers are pushing for awareness on the opportunities in as well as risks associated with this theme in Asia.
David Li, senior portfolio manager at Impax Asset Management, said the transition towards a more sustainable global economy will lead to out-performance for well-positioned companies.
‘We believe that global markets will be shaped profoundly by global sustainability challenges, such as climate change and pollution, as well as by essential investments in human capital, infrastructure and resource efficiency,’ he told Citywire Asia.
These trends will potentially drive growth for well-positioned companies and create risks for those unable or unwilling to adapt.
Li said BNP Paribas Asset Management – which is a stakeholder in Impax – has long viewed climate change as a key investment theme in the region.
Asia-Pacific, in particular, is facing an impending crisis on climate change due to constrained natural resources and ever-increasing urbanisation.
However, thanks to governmental policy across the region, high and rapidly expanding levels of investment are taking place in this theme. The Chinese government, for example, has repeatedly demonstrated that the ‘war on pollution’ goes far beyond rhetoric, he added.
Impax also has a Climate Impact strategy that focuses on companies which enable the mitigation of or adaptation to climate change to high net worth individuals in Asia through discretionary mandates.
In addition, it has funds that are interested in the growth opportunity for companies exposed to environmental products or services, specifically in the energy efficiency, renewable energy, water, waste and sustainable food and agriculture markets.
Louise Dudley, global equities portfolio manager at Hermes, said there are many global initiatives on the low carbon transition.
Within Asia, the UK-China Green Finance Initiative is supporting financial businesses in implementing the Task Force on Climate-Related Finance Disclosures (TCFD) recommendations.
Dudley said climate-related financial risk can broadly be divided into two major categories – carbon risk, which is related to the transition to a low-carbon economy, and climate impact risk, which is related to the physical impacts of climate change.
‘We found that exiting entire industries – such as energy – can have a very significant impact on performance and risk exposures,’ she added.
Hermes Global Equity Core fund and Hermes Global Equity ESG fund, which are registered for sale in Asia, take into account climate-related risk.
Andrew Howard, head of sustainable research for ESG at Schroders, said China’s plans for a nationwide carbon trading scheme, which was announced in late 2017, adds to its confidence that more widespread and material carbon prices will provide impetus for further action.
Meanwhile, the average global carbon prices have more than doubled since the middle of last year, following reforms announced to the EU Emissions Trading Scheme.