NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

By Reema Bhattacharya

ESG-focused fund inflows into Asia are growing, but investing is replete with risk given the region’s diversities and historical inequalities. The lack of universal standards and conflicting development goals among regional governments mean that investors can’t copy-paste their global knowledge, but must develop a more bespoke approach, writes Reema Bhattacharya

Mainstream thinking on the environment and investment has markedly shifted in the space of the past 12 months. Global inflows into environmental, social and governance (ESG) funds reached USD80.5 billion in the third quarter of 2020, with ESG funds in Asia witnessing an inflow of more than USD8.7 billion, and set to grow at a similar pace in the years ahead. US-based Fidelity Investments reported that companies with the highest ESG performance scores had the best financial records in eight of the past nine months.

These figures indicate a shift from the perceived wisdom of recent decades that paying closer attention to ESG issues comes at the expense of a company’s bottom line. Rather, decision-makers now recognise that engaging with a range of ESG issues is crucial to future economic health, not a drag on it. The natural next step would be for governments to implement consistent targets and transparent policies that facilitate sustainable investing. But in Asia’s emerging markets, many with opaque regulatory environments and politicised reform programmes, ESG investment is far from straightforward.