Asian Institutional Investors Lag in Sustainable Investing Compared to Latin American Peers

In the realm of sustainable investing, Asian institutional investors are finding themselves at a crossroads, trailing behind their counterparts in Central and South America. A recent survey conducted by Schroders, titled the Global Investor Insights Survey, sheds light on the current state of investor intentions regarding sustainable investments in the Asia Pacific (APAC) region. Published on October 17, the survey reveals critical insights into the investment behaviors and attitudes of institutional investors across various regions.

Current Investment Trends in Sustainable Energy

The survey indicates that approximately 61% of Asia Pacific investors are currently engaged in investments related to the energy transition. While this figure is substantial, it still falls short when compared to the 66% of investors in Europe, the Middle East, and Africa (EMEA), and 64% in Central and South America. This discrepancy highlights a significant gap in the commitment to sustainable investing across different regions.

Moreover, the survey reveals a concerning trend regarding net-zero commitments. A staggering 39% of APAC respondents reported having no net-zero commitment in place, with 27% indicating they had no intention of establishing one. In contrast, EMEA respondents reported a lower percentage of 31% without net-zero goals, while Central and South America had 33% of respondents lacking such commitments. This data underscores the urgent need for APAC investors to reassess their strategies and commitments to sustainability.

The Investment Mindset: A Focus on Returns

One of the key reasons behind the lag in sustainable investing among Asian institutional investors is their cautious approach to climate-related investments. A leading consultant in the region, who requested anonymity, noted that it is uncommon for APAC investors to engage in sustainable investments without a clear investment case. “I’ve heard mega-scale investors say we don’t even use the term ESG [environment, social, and governance] – they talk about energy transition and decarbonization because those are specific areas where they can see a clear case of an investment trend driven by consumers,” the consultant explained.

This perspective reflects a broader trend among institutional investors in the region, who prioritize tangible returns over abstract sustainability goals. The consultant emphasized that the prevailing logic is that if they are investing in the energy transition, they are doing so with a valid return in mind.

Shifting Dynamics in Asset Management

The investment landscape is evolving, and the performance of energy stocks in 2022, coupled with the underperformance of clean-tech compared to major tech stocks in 2023 and 2024, has placed additional pressure on asset owners. Kathryn Saklatvala, head of investment content at London’s investment consultancy bfinance, noted that this performance picture has driven a noticeable shift in tone among some of the largest asset managers globally. “ESG is to be framed as a ‘client choice,’ rather than promoted as an intrinsic firm-level philosophy,” she stated.

This shift is particularly relevant in light of recent developments, such as NZ Super’s reaffirmation of its commitment to active ESG voting strategies. This move comes amid declining rates of support for environmental and social shareholder proposals by major asset managers like BlackRock and Vanguard, which have faced criticism from US lawmakers regarding “woke capitalism” and concerns about fiduciary duties.

Focus on Private Markets and Emerging Technologies

When it comes to targeting the energy transition, traditional renewable energy sources like wind and solar are increasingly taking a backseat to emerging sectors and energy infrastructure. The Schroders survey highlights that institutional investors are now viewing power grid infrastructure and emergent technologies—such as hydrogen, carbon capture, and batteries—as the most promising opportunities in the energy transition over the next one to two years.

Despite a long-standing appetite for private markets among APAC investors, the survey reveals a notable disparity in plans to allocate funds to renewables compared to their emerging market peers. Only 48% of APAC investors plan to increase their allocations to renewable infrastructure private equity over the next year or two, while the figure stands at 66% for investors in Central and South America. Additionally, Central and South American investors are also outpacing their APAC counterparts in adding to private equity and multi-private asset solutions.

The Role of Regulation and Consumer Demand

The consultant’s insights suggest that regulation or a clear investment case is often a prerequisite for sustainable investing among Asian institutions. “It comes back to either a regulatory push or a common-sense reason due to changing consumer demands. Asia is good at talking the talk, but generally, investors here have not walked the walk unless there has been government intervention,” the consultant remarked.

This sentiment is echoed in the broader context of North America, where investors reported the lowest levels of climate-related allocations. The Schroders survey found that only 48% of North American respondents are currently invested in the energy transition, with 61% lacking a net-zero commitment.

Conclusion

As the global investment landscape continues to evolve, the findings from the Schroders Global Investor Insights Survey serve as a wake-up call for Asian institutional investors. With a significant gap in sustainable investing compared to their Latin American peers, there is an urgent need for APAC investors to reassess their strategies, embrace sustainability as a core investment principle, and align their commitments with the growing global emphasis on environmental responsibility. The future of sustainable investing in Asia hinges on the ability of institutional investors to adapt to changing market dynamics and consumer expectations, ensuring that they are not left behind in the race towards a more sustainable future.