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ESG Investing / Asset Management
Western investors eye Asia transition financing
Resilience, development, regulatory push, demand, biodiversity lure asset managers
Yuki Li 1 Nov 2023

European, US asset managers are seizing the opportunity and actively engaging in sustainable investment in Asia as the region faces the dual challenge of economic development and transitioning towards a low-carbon economy, according to a recent report.

Fortunately, responsible investment in Asia is not lagging behind that of Europe and North America, thanks to regional regulatory push and increased demand for responsible investing, finds the report published by French-based asset management firm Amundi.

Recognizing the role of investors in tackling sustainability challenges, earlier this year, Ethos Asset Management, a US-based private debt financing firm, announced a sizable investment of US$940 million in both Southeast Asia and Hong Kong over the next three years.

And, amid Hong Kong’s urgent need to transition to a low-carbon and net-zero economy, Ethos is positioned to provide financing to infrastructure projects that support this goal. The firm is currently evaluating a US$60 million real estate project and a US$200 million project with a conglomerate in Hong Kong conforming to environmental, social and governance (ESG) criteria.

Despite the downturn in the property sector in mainland China and Hong Kong, Ethos CEO Carlos Santos believes there is a resilience in Hong Kong. “We provide financing when the company is unprofitable and turn unprofitable construction transactions into financially profitable deals, as we selectively invest in companies and believe we can differentiate ourselves to ensure their long-term sustainability and successful delivery.”

Biodiversity

In the sustainability landscape, biodiversity protection is attracting more attention. Southeast Asian countries, especially Indonesia and Malaysia, earn a lot of their GDP from biodiversity, be it through farming, tourism or other natural resources. Preserving biodiversity, finds a BNP Paribas report, is crucial for the approximately US$2.2 trillion of Southeast Asian GDP that is reliant on it.

In this vein, Ethos in June 2023 invested in The Plastic Bank Recycling Corporation, a Canada-based non-profit dedicated to eliminating ocean-bound plastic, given that over 60% of the world’s creatures live in the ocean. The programme is currently working with communities in Indonesia and the Philippines.

The investment is expected to aid the non-profit in expanding its waste collection infrastructure, scaling up recycling capabilities, amplifying its overall impact, and empowering more communities globally to battle plastic pollution. At the same time, it has positive social impact, such as creating job opportunities for local people who are poor. Ethos’ Santos adds that “10% of our investment decisions are fully dependent on ESG criteria.”

Sustainable investment across various industries is a trend echoed by other global investors. “Measuring criteria for biodiversity is much more difficult than it is for other climate-related issues because you don’t have just CO2 to focus on,” notes Caroline Le Meaux, global head of ESG research at Amundi, speaking with The Asset about the complexity of the biodiversity issue. “[However,] in a way, this will drive and accelerate innovation in this field.”

On this issue, Le Meaux notes the importance as a risk assessment tool of the final recommendations of the Taskforce on Nature-related Financial Disclosures, published in September, which were developed as a guide for organizations to report and act on evolving nature-related dependencies, impacts, risks and opportunities.

“It is crucial for us to thoroughly assess the risks and dependencies involved,” Le Meaux shares. “It’s not just about the impact, but also understanding the dependencies because many aspects of our production, growth, and even a company’s ability to deliver goods and services, are reliant on natural capital.”

Assessing the opportunity on offer for asset managers, the BNP Paribas report estimates that US$46 billion in biodiversity financial investments will be needed by 2030 to monetize biodiversity offsets.

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