Asian nations such as China are among some of the biggest polluters on the planet but are also, paradoxically, also some of the countries most committed to renewables. While Asia still has a long way to climb up the ESG ladder, the steps they are implementing could set the right pace for a brighter future, creating a range of potential new opportunities for investors.
Asia pacific is the fastest growing region in the world¹ and with that, rapid growth comes opportunity and challenge. Although the economic boom has lifted many people and countries in the region out of poverty, it has also contributed to environmental degradation and rapid urbanisation, resulting in a rising demand for resources and growing health concerns.
A number of cities in China and India have some of the highest urban pollution and smog rates globally. This, coupled with longstanding corruption issues affecting many companies operating across Asia, means it has a long way to go to match other regions such as Europe in integrating strong environmental, social and governance practices.
However, despite the challenges many countries and companies in Asia face, there is also massive room for potential and change. Asia has been the home to many innovative practices, such as Bhutan’s Gross National Happiness (a holistic and sustainable approach to development, which balances material and non-material values with the purpose that humans want to search for happiness)², Thailand’s sufficiency economy and China’s strong economic growth prior to Covid-19³. The growth potential in Asia is a major reason why western investors look to capitalise on this region.
“Managing sustainability risks and being seen as a sustainable enterprise does not compromise on financial performance. More businesses in Asia recognise that being sustainable is good for improving their resilience in increasingly challenging times,” says Joshua Kendall, senior ESG analyst at Insight.
The region is also known for its potential for renewables. Global consultancy EY’s Renewable Energy Country Attractiveness Index (RECAI) ranked seven Asian countries among the globe’s most attractive markets for renewable energy sources including wind power, hydropower and solar energy. China came in second on the index with India seventh and Japan in tenth place.⁴
There is also the wider allure of ESG, which is growing in importance within investing and has recently gained heightened focus in terms of the need for sustainability and how companies are dealing with the repercussions of the Covid-19 pandemic. With many reputable companies in Asia becoming more ESG friendly, investors could help assist further positive change in Asian sustainability while also generating positive returns.
In addition, from a generational perspective, the generation known to be the most environmentally conscious and interested in sustainable measures is the millennial cohort, and 86% of this grouping live in EM countries, an important aspect for investors to consider.
According to Glavan, the experiences of EM millennials are diverging sharply from their western counterparts – offering significant hope for future economic development and wealth creation and investment across swathes of the developing world.
“EM millennials are more affluent, better educated and have different perspectives and priorities than their parents’ generation which tend to sacrifice present consumption for future. They will also, over time, become the largest part of the workforce so they will be a very important force in terms of shaping not only consumer spending but also company policy,” she says.
More widely, Glavan believes portfolio managers are also becoming increasingly aware of the need to boost sustainability and the growing impact of and desire to accord with United Nations Sustainable Development Goals (SDG). The SDGs are designed to be adopted globally to help achieve a better and more sustainable world and are highly relevant to many emerging markets.
Looking towards the future, the renewables sector in this continent is a key market to watch. Many countries in Asia have a strong representation in this space and it could offer significant new investment potential in the future.