Home Issues Special Feature

UOBAM's new methodology underpins growing interest in ESG investment products

The Edge Singapore
The Edge Singapore8/23/2021 08:00 AM GMT+08  • 6 min read
UOBAM's new methodology underpins growing interest in ESG investment products
UOBAM is taking sustainability into its hands with its latest ESG investment product.
Font Resizer
Share to WhatsappShare to FacebookShare to LinkedInMore Share
Scroll to top
Follow us on Facebook and join our Telegram channel for the latest updates.

Back in the 1960s, some investors were already paying heed to be more socially responsible. They started paying attention to the harm certain business activities had on the environment; others began to eschew tobacco companies given how the harm from cigarettes had been proven. Or, they avoided arms manufacturers.

What was previously called corporate social responsibility in an earlier era has evolved into the environmental, social and governance (ESG) standards as popularly known today.

As the years go by, the list of concerns and issues on the agendas have gradually evolved, although the core goal remains the same: have a positive impact on the society at large and not be solely obsessed with making returns on capital.

With the on-going pandemic, there’s a heightened consciousness on the part of the wider community to pay more attention to ESG, and one way the investors have been doing so is by demonstrating their healthy appetite in this area.

According to Refinitiv, which tracks industry data, Asia-Pacific borrowers more than doubled issuance of bonds tied to ESG themes to a record US$69 billion this year, as they sought to tap increasing investor appetite for sustainable asset classes.

From the perspective of UOB Asset Management (UOBAM), this statistic is an indication of how far ESG has come since 2012, when there was limited attention to ESG investing market in Asia outside of Japan. Investors had to look to Europe, where there is better awareness and such investing themes were more prevalent.

See also: Is 2023 the year Southeast Asia's financial services become future-ready?

Along with changing attitudes and growing awareness of ESG since the onset of the pandemic, market dynamics have changed as well.

“Conversations are now no longer simply about financial returns and performance when making investment decisions. Investors see that sustainability is no longer viewed as a ‘good-to-have’ aspect or a tertiary consideration but is now often actively integrated into investment decisions and business models. ESG Investing will eventually become the new normal in Asia,” according to UOBAM Sustainability Office.

If current trends are to go by, more consumers will call on companies to embrace more ESG-friendly practices, governments will implement more ESG-related rules and regulations. And more important and directly relevant to the financial industry, the whole ecosystem of investors and issuers will keep on growing.

See also: Towards net-zero buildings: a quantitative study

See also: How to invest when markets are in a state of transition: UOB Asset Management

“We believe that top-down commitments have driven the ‘wall of money’ in Asia towards embracing ESG and sustainability. The push from governments and regulators has catalysed the adoption of sustainability practices by many Asian companies, that have realised that ESG investing also drives long term financial performance while simultaneously creating a positive impact on the environment and society,” UOBAM Sustainability Office adds.

However, the ESG journey will not be entirely a smooth one. Given how investing according to ESG themes is still a relatively nascent part of the wider financial services system, there are issues that will need addressing.

Firstly, ESG ratings – from which investors need to use to gauge – can be difficult to interpret, as rating providers have differing methodologies in assessing companies based on different data points and the quality in assessment. The final ratings themselves are a function of ESG factors including sub-variables encompassing broad areas in scope and measurement.

Secondly, there is a gap in data coverage for emerging and frontier markets, especially in Asia, where this trend is still relatively new. Many companies do not have the requisite resources to fully provide what the ratings providers require of them.

Thirdly, many investors still have the misconception that compromises have to be made when investing in ESG products. But this is not entirely true.

Research from organisations such as CFA Institute have shown that strong ESG companies achieve better financial performance compared to those who place less or no emphasis on ESG factors.

“The positive relationship between ESG and performance supports the notion that businesses that adopt such practices are more resilient, able to navigate risks well and are better prepared to meet future challenges,” says UOBAM Sustainability Office.

“Far from compromising on returns, we believe ESG investing allows the investor to invest for both profit and purpose. Investors have started to take notice, with fund inflows into ESG funds in Asia in 2020 growing nearly 20 times compared to the previous year from US$850 million to US$16.9 billion,” it adds.

To this end, UOBAM has developed its own proprietary ESG rating and assessment methodology that incorporate the use of artificial intelligence (AI) and machine learning models to gather, sieve, analyse and process ESG data.

Should data not be readily available, UOBAM is able to leverage its strong regional footprint and local investment teams to conduct engagements and detailed research on the ground to gather better insights into the ESG performance of companies it invests or looks to invest in.

Important Notice & Disclaimers:

This publication shall not be copied or disseminated, or relied upon by any person for whatever purpose. The information herein is given on a general basis without obligation and is strictly for information only. This publication is not an offer, solicitation, recommendation or advice to buy or sell any investment product, including any collective investment schemes or shares of companies mentioned within. Although every reasonable care has been taken to ensure the accuracy and objectivity of the information contained in this publication, UOB Asset Management Ltd ("UOBAM") and its employees shall not be held liable for any error, inaccuracy and/or omission, howsoever caused, or for any decision or action taken based on views expressed or information in this publication. The information contained in this publication, including any data, projections and underlying assumptions are based upon certain assumptions, management forecasts and analysis of information available and reflects prevailing conditions and our views as of the date of this publication, all of which are subject to change at any time without notice. Please note that the graphs, charts, formulae or other devices set out or referred to in this document cannot, in and of itself, be used to determine and will not assist any person in deciding which investment product to buy or sell, or when to buy or sell an investment product. UOBAM does not warrant the accuracy, adequacy, timeliness or completeness of the information herein for any particular purpose, and expressly disclaims liability for any error, inaccuracy or omission. Any opinion, projection and other forward-looking statement regarding future events or performance of, including but not limited to, countries, markets or companies is not necessarily indicative of, and may differ from actual events or results. Nothing in this publication constitutes accounting, legal, regulatory, tax or other advice. The information herein has no regard to the specific objectives, financial situation and particular needs of any specific person. You may wish to seek advice from a professional or an independent financial adviser about the issues discussed herein or before investing in any investment or insurance product. Should you choose not to seek such advice, you should consider carefully whether the investment or insurance product in question is suitable for you.

UOB Asset Management Ltd. Company Reg. No. 198600120Z

Photo: Unsplash

Loading next article...
The Edge Singapore
Download The Edge Singapore App
Google playApple store play
Keep updated
Follow our social media
Subscribe to The Edge Singapore
Get credible investing ideas from our in-depth stock analysis, interviews with key executives, corporate movements coverage and their impact on the market.
© 2022 The Edge Publishing Pte Ltd. All rights reserved.