Balancing Act of Risks & Related Sustainability Investments

ESG investments in Asia have developed over time from a fad to a more sustainable method of investing. Investor interest in national climate and development policies, energy security, and sustainable financing has not diminished despite recent global macroeconomic and geopolitical events in Asia.

Investment opportunities such as ESG integration, climate investing, and more general sustainability and social themes have been produced as a result of increased interest in ESG investing. The incorporation of ESG factors into investment decisions enables investors to take into account potential sustainability risks that could have a significant impact on portfolio value, such as climate change, physical risks from stranded assets, and potential supply chain liabilities frequently brought on by regulations or laws. Active ownership contributes to improved ESG results in businesses and increases portfolio value.

Second, given the investments necessary for economies to decarbonize, the global climate agenda will continue to present possibilities. When net zero paths are implemented, there will be a demand for climate technology, such as renewables, electrification, and energy storage. This suggests potential in the larger supply chain of climate solutions, such as new developments in the production of battery cells or semiconductor technologies or component makers for the solar and wind industries. Third, interest in larger sustainability topics like natural capital and biodiversity is anticipated to rise. The World Economic Forum listed biodiversity loss as one of the top five global risks for the following ten years, and the TNFD framework would be introduced in 2020 and 2022. (Taskforce on Nature-related Financial Disclosures). The increased emphasis on natural capital could lead to opportunities in sectors including food, agriculture, and water.

There are dangers with all investments. Divergent national norms, data security issues, and sustainability risk consequences are some examples of ESG investing. Nevertheless, given that these topics should have substantial development tailwinds, we are optimistic about several industries, such as the environment and sustainable thematics. We believe that the future of ESG investments in Asia is promising as investor sentiment shifts in favour of a more sustainable form of investing.