Shareholder engagement key driver for Asia’s green finance growth: experts

Shareholder engagement in the form of behind-the-curtain dialogues or proxy voting, as well as engagement with asset owner clients, should be a key for asset managers to sustain the concept of green finance in Asia, investment professionals said Monday.

There is no shortcut to navigate how to persuade Asian companies to commit to net-zero pledges. Incentives to achieve the sustainable goals have so far remained elusive, while on the other hand, asset prices have yet to fully reflect climate risks, panelists said during the C-suite climate-investor forum hosted by the Asia Investor Group on Climate Change. The forum was held on the sidelines of the Seoul summit of Partnering for Green Growth and the Global Goals 2030, or P4G in short, which wrapped up Monday.

Seoul-based Hanwha Asset Management Chief Executive Officer Kim Yong-hyun underscored the need of continued engagement and dialogue with all parties concerned, including investment targets, asset owner clients and regulators.

“It is just as important to have that dialogue with asset owners, retail investors and regulators (as to have one with target companies),” Kim said.

This is against the backdrop of the challenges to the green finance. Specifically in South Korea, board members of the listed companies tend to serve three-year terms, meaning the members including CEOs are unlikely to be incentivized to implement a long-term goal of sustainability, such as carbon reduction, whereas the fund managers’ asset owner clients might be willing to wait for over 10 years for financial returns.

“I think the public (stock) market offers a little bit more of a challenge, in that you are seeing the financial results on a quarterly or on an annual basis,” Kim said. “So (the question is) how do you deal with the difference between the two- or three-year goal versus the 10-year goal.”

The challenges in corporate green adaption are observed across the Asia-Pacific region, another expert said.

“The important transition we would like to see is for Asian companies to go beyond what we would call a compliance mindset, (under which the companies) must do the following because it is legally required,” said Sandra Boss, global head of investment stewardship of BlackRock.

Boss contrasted her view with Kim toward Korean market‘s green adaption, given track records including listed state-run utility firm Korea Electric Power Corp.’s decision to cut its ties with coal-related projects after “a two-way dialogue” with its shareholders last year.

“What we are looking for is to just see expansion of that sort of positive examples where engagement will be critical,” Boss said. “Voting would be part of it, but it is just not the same tool as it might be in some of the other market.”

This indicates that time is drawing near for financial circles to boldly use its power to make sustainable decisions, especially in the region where countries like Korea, China and Japan announced a net-zero emission pledge by 2050 just last year.

For example, Amundi Asset Management has strategically used collective engagement to help financial companies change their carbon strategies, said Yasunori Iwanaga, Amundi Asia‘s chief responsible investment officer. The France-based asset management firm also partnered with Asian Infrastructure Investment Bank to allocate more capital to not only green bonds but also issuers with good green profile.

Moreover, Tokyo-based Asset Management One is encouraging portfolio companies to set the goal of net zero, using Paris Aligned Investment Initiative framework for its net-zero benchmarks in investing, in the country where “a handful of companies” have a clear set of goals to net-zero initiatives, Asset Management One CEO Akira Sugano said.

The event was aimed at celebrating the Asia launch of the AIGCC’s Investor Climate Action Plans Guidance Framework.

By Son Ji-hyoung (consnow@heraldcorp.com)