Corporate governance – the G in the list of ESG investment criteria – has improved significantly in Asia Pacific over the past five years. In Japan, China, Malaysia, Singapore, Taiwan, and beyond, there are new or revised corporate governance codes. Other developments include revised listing rules, enhanced disclosure and increased transparency.
Changing corporate culture: not a simple cut-and-paste
Despite this positive momentum, there is room for improvement. Related-party transactions remain an issue in some markets, as does the appointment of truly independent directors who are not simply friends of the management, but can actually contribute to the running of a company.
Such changes to corporate culture will take years since they do not involve a simple direct transfer of governance models from other regions such as the West. Global best practice should be adapted and implemented according to the local situation. Asia is a much more disparate and fragmented region than the West, and implementation of governance best practice will need local fine-tuning.
Asia’s long tradition of family-owned businesses and corporate dynasties has been cited as an obstacle to good governance, but there are also cases where a strong relationship with the owner of a family company can leave a trusted outside advisor with an effective channel to influence the running of that company.
A global sustainability strategy, also for Asia Pacific
More broadly, an asset manager’s fiduciary responsibility can have a massive impact on the communities it is based in, also in Asia Pacific. This can take form of the company’s own business policies, risk exposures, and even the duty to warn local clients to avoid unsuitable or unsustainable business areas that are not in their best interests.
To bring emerging markets generally into the sustainability perspective will take time, and a clear strategy and policy. The plans set out in our Global Sustainability Strategy extend to Asia Pacific, meaning that local assets will be managed with sustainable investment practices in mind including a focus on the pillars that we have defined: the energy transition, environmental sustainability, and equality and inclusive growth.
BNPP AM believes the financial community, driven by prudential and long-term risk considerations as well as motives of public spirit, has an important role to play in addressing the pressing concerns of environmental and social responsibility. While the transition to global sustainable finance system is gaining pace, more work needs to be done by policymakers, regulators and investors.
The overriding aim of BNPP AM is to deliver long-term returns for investors from sustainable assets in line with the widely supported UN Sustainable Development Goals (SDGs) and the Paris Climate Agreement goals and more generally with the needs of the future economy.
 This article is based on an interview with Ligia Torres, CEO Asia-Pacific, in the Impact Investing in Asia book, published by Asia Asset Management, November 2019
On sustainable finance, read Towards a sustainable finance system: further yet to go
This article appeared in The Intelligence Report – 12 November 2019
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Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients.
The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay.
Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions).
Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.