Last December, IJ presented results from its survey of Japanese private asset owners on ESG/sustainability. We similarly surveyed asset managers in January and February of 2021. Questionnaires were sent online to 161 asset management companies with 28 responses received.
Following is an excerpted translation from a report originally posted at AL-IN Web on August 17.
All 28 respondents to this survey, 8 Japanese and 20 of foreign origin,* represent signatories to the UN Principles for Responsible Investment (UNPRI). As institutional investors tasked with maximizing returns for beneficiaries over the long-term, they are acutely aware of the importance of ESG/sustainability investment.
UNPRI provides various rubrics and a rating scale (A+ - E) to gauge how well a signatory incorporates ESG criteria into its investment processes. More than 80% of signatories have earned the maximum A+ rating for “strategy & governance” (comprehensive evaluation). Although foreign asset managers ranked above their Japanese counterparts in “strategy & governance”, Japanese asset managers scored higher on “ESG integration in equities”, “active ownership in equities”, “engagement activity”, and “proxy voting”. Among the 20 foreign companies who responded to our survey, those with JPY 50 trillion or more in ESG investments earned the highest score in “strategy and governance”. In fact, those companies scored better in all categories than companies with less than JPY 50 trillion in ESG holdings.
Among the survey respondents, 78.6% disclose their UNPRI ratings to all stakeholders via their websites and publications. Nearly all received an A+ in “strategy & governance”.
Chart 1. UNPRI Evaluation
Expectations about ESG investment seem higher among asset managers than asset owners. Ninety percent of asset manager respondents saw the demand for ESG investment among asset owners as “very high” or “high”. In last year’s survey of asset owners (https://investmentjapan.jp/research/2439/), however, less than 60% answered they either engage in ESG investment or they plan to do. Asset managers report receiving a growing number of inquiries about ESG products/strategies and growing attendance at sustainability seminars. In addition, managers notice that questions about ESG/sustainability investing have become specific and probing. One foreign asset manager allowed, however, that the demand for ESG investment among Japanese is still limited compared to European investors.
Chart 2. Perceived demand for ESG investment
AUM devoted to ESG (including integration) among respondents varies widely, from under JPY 1 trillion to over JPY 100 trillion, depending on a firm’s size and whether it operates globally or not. Foreign companies in general invest a greater portion of their AUM in ESG than Japanese firms. More than a third (37.5%) of Japanese asset managers invest less than JPY 1 trillion and none invest more than JPY 100 trillion, while only 8.0% of foreign assets managers invest less than JPY 1 trillion and 12.0% manage more than JPY 100 trillion in ESG-related assets.
As a percentage of AUM, 21.4% of respondents say ESG investments represent “less than 40%” and 57% say ESG AUM is “60% or more”, which suggest ESG investment is becoming more prevalent in asset management. Again, however, foreign companies allocate more to ESG investment than Japanese managers: a majority of Japanese companies (33%) said they allocate 60-80% of total AUM to ESG investment, while 60% of foreign companies allocate more than 60% to ESG investment and 30% allocate 100% to ESG.
Using regression analysis, this survey identified a positive correlation between the amount of ESG investment and the percentage of ESG investment in total AUM.
The survey also asked about methods and approaches toward ESG investment products, based on the Global Sustainable Investment Alliance’s (GSIA) seven definitions of sustainable investing. Almost all asset managers (92.4%) adopt “ESG integration” in their ESG products. As for the remaining approaches, the more ESG investment, the more approaches are adopted.
In terms of the share of each investment method in ESG AUM, “ESG integration” accounts for the largest at 69.4%, far ahead of the 2nd largest “negative screening” at 28.1%.
Chart 3. Which sustainable investing approaches are adopted by ESG AUM?
Most asset managers foresee continuing adoption and integration of ESG investment into their operations. Eighty-nine percent anticipated gradually "integrating ESG factors into all investment strategies”. Seventy-one percent expect to "enhance product lineups that take ESG into account". Others (64.3%) look forward to "making a social impact" and 57.1% consider "collaborating with other companies to have a broader impact" (57.1%) important to expanding their ESG investment.
Lastly, the survey asked about COVID-19's impact on asset managers' ESG/sustainability investment decisions. The majority (64.3%) said the pandemic “has had an impact”. The pandemic has seemingly led to greater awareness and understanding of ESG/sustainability concepts among asset managers.
* The 28 respondents (in alphabetical order)
|Japanese:||New Horizon Capital, Nikko Asset Management, Nomura Asset Management, Nomura Real Estate Asset Management, SPARX Asset Management, Sumitomo Mitsui DS Asset Management, Sumitomo Mitsui Trust Asset Management, Tokio Marine Asset Management|
|Foreign origin:||Aberdeen Standard Investments, Aegon Asset Management, AllianceBernstein Japan, Amundi Japan, Barings Japan, Capital Dynamics, Cohen & Steers Japan, Deutsche Asset Management, Dimensional Japan, Invesco Asset Management (Japan), JPMorgan Asset Management, Natixis Investment Managers, NN Investment Partners, PGIM Real Estate Japan, PIMCO Japan, Principal Global Investors, Robeco Japan, Securis Investments Japan, UBS Asset Management, Wellington Management Japan|