ESG Takes Centre Stage in Asia Funds' Investments
Morrison & Foerster, a prominent global law firm, has unveiled its second annual Asia Funds ESG Survey findings.
The results underscore a sustained investor demand for increased accountability in ESG risk management integration. Simultaneously, general partners (GPs) are actively incorporating responsible technology processes to address concerns related to climate reporting and disclosure issues.
The recently released survey report, titled "Putting the Sustainability Puzzle Pieces in Place," in collaboration with AVCJ, highlights a gradual integration of sustainability efforts among Asia funds compared to the previous year. Notably, 84% of respondents among GPs are conducting non-compliance-related ESG due diligence on most or all deals they consider.
Marcia Ellis, the global co-chair of Morrison & Foerster’s Private Equity Group, emphasises the awareness among clients about how integrating sustainability considerations can enhance a company's valuation and mitigate risks from future regulatory requirements. However, she notes that the discourse around sustainability in Asia will differ due to diverse regulatory regimes, geopolitical developments, and macroeconomic factors.
Survey Highlights:
ESG resources have increased, with 43% of respondents having an ESG committee and an ESG specialist, up from 8% in the previous year. However, 90% of respondents have made no recent changes to their ESG policies or implementation efforts.
Sustainability is considered at each stage of the investment process, with 84% of respondents conducting non-compliance-related ESG due diligence on most or all deals. However, only 23% have withdrawn from an investment process after discovering adverse ESG issues during diligence.
GPs acknowledge the potential for sustainability performance to drive value and return, as 91% have invested in a company with negative or neutral ESG credentials, expecting to enhance its valuation. Additionally, 84% believe positive ESG metrics will increase the valuation of a target.
Responsible tech is a key theme for investment and sustainability in 2023, with 80% of respondents adopting or requiring the adoption of responsible tech at portfolio companies. However, 20% either do not take this action or are unfamiliar with the concept.
The push for innovation in a competitive global marketplace exerts downward pressure on ESG integration, as 50% of respondents prioritise tech innovation over responsibility and social considerations at their firm.
Sustainability efforts extend beyond climate-related issues, with a focus on progress in diversity, equity, and inclusion (DE&I). 73% of respondents have identified clear and measurable goals on DE&I, and 58% have conducted internal training or communicated the importance of DE&I.
Greenwashing risks prompt meaningful action across operations, portfolio companies, and supply chains, with 70% of respondents having policies regarding ESG communications or green claims by portfolio companies.
GPs face significant regulatory and operational challenges, with 53% citing the need to keep pace with rapidly evolving regulatory regimes as the most significant challenge. The lack of transparency and reliability of ESG data follows closely at 43%.
For further details, including access to the complete report, a quiz to evaluate your company's position on the ESG journey or the Asia sustainability puzzle podcast series, visit the report page.
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To view and compare company ESG Ratings and Sustainability Reports, visit our Company ESG Profiles page.
Source: Morrison & Foerster
