Note: All currency is in US dollars, unless otherwise specified
Hong Kong — Sustainable and responsible investing is a small but growing trend in Asian fund management with strong potential to propel improvements in corporate environmental and social performance as well as governance and transparency, according to a study released today by the Association for Sustainable and Responsible Investment in Asia, or ASrIA. It also shows the potential for Asian companies that strive for high standards to gain access to a growing pool of capital. The study was sponsored by the International Finance Corporation, the private sector arm of the World Bank Group.

SRI funds differ in their investment criteria, but often demand high standards in specific areas and a greater focus on a sustainable approach to business. The industry traces its history to values-based investor groups. Increasingly, however, SRI investment is becoming a mainstream asset class as investors focus more on the risks associated with poor practices by corporations, including disregard for shareholder rights. Despite the fact that SRI is well-established globally—with $2.4 trillion of assets worldwide invested in SRI funds—only $2.2 billion are invested in emerging markets, including Asia. At the same time, only $1 billion of the $2.4 trillion total has been invested by developing country investors.

“The experience and methodologies of global SRI funds and research providers has much to offer emerging markets,” said Tessa Tennant, chair of ASrIA. The report finds that SRI can be an important catalyst to encouraging stronger performance and reporting by companies beyond the financial bottom line. This report provides a comprehensive lay of the land of the industry, concluding that there is a large potential market for SRI funds in Asia.

“This new report provides a good foundation to understand the SRI industry in Asia. It will help IFC encourage companies to strive for high standards and gain better access to capital,” said Javed Hamid, IFC’s director for East and the Pacific. IFC is committed to helping Asian companies and fund managers to mainstream SRI investment. IFC already contributes to that process through its environmental and social due diligence in investment projects. “We believe that it is important for IFC to play a leadership role in promoting good practices to help ensure that Asian companies can compete globally,” added Mr. Hamid.

The report suggests that SRI industry prospects could best be boosted in emerging markets through partnerships rather than through the slow emergence of values-oriented retail investors as an investment force. Such partners would include global SRI funds that have SRI research and investment experience; multilateral institutions with specific fund investment experience, developmental focus, and a commitment to improved private sector practices; local investment partners who know the local markets best; and civil society organizations, that can add further input on local issues.

The report finds that Australia and Japan have been the SRI pioneers in the Asia-Pacific region with close to $10 billion in SRI funds under management and rapid adoption of SRI practices in the corporate and research sectors. Korea presently shows the most potential for near-term development through companies that are adopting SRI-oriented practices and a domestic fund industry that is becoming more diversified and demanding. China and India have enormous unrealized potential, but the mix of factors required to develop the industry make it uncertain as to how quickly markets will be able to gain momentum in those places where there is presently little sign of SRI activity.

SRI-friendly developments initiated by governments and companies across the region bode well for the industry. These changes include efforts to improve governance standards. There has been particularly strong adoption of ISO 14001 in countries like Thailand that are focused on export markets. Similar trends are evident in China. Performance benchmarks, whether ISO 14001 or formal sustainability reporting, brings companies and investors into a useful dialogue about SRI fundamentals.

ASrIA’s mission is to raise public awareness and educate corporations and financial institutions about sustainable development and their role in making a safe, healthy, equitable, and ecologically rich future. ASrIA aims to do this in an Asian context, to help develop the Asian agenda for SRI so that it meets the demands of Asian companies and communities.

This study was sponsored by IFC's Sustainable Financial Markets Facility, a donor-funded technical assistance program established in 2002 to promote environmentally and socially responsible lending and investment practices in developing countries. The Facility is currently funded by IFC and the Governments of Switzerland, The Netherlands and Norway.

The mission of IFC is to promote sustainable private sector investment in developing countries, helping to reduce poverty and improve people's lives. IFC finances private sector investments in the developing world, mobilizes capital in the international financial markets, helps clients improve social and environmental sustainability, and provides technical assistance and advice to governments and businesses. From its founding in 1956 through FY03, IFC has committed more than $37 billion of its own funds and arranged $22 billion in syndications for 2,990 companies in 140 developing countries. IFC's worldwide committed portfolio as of FY03 was $16.7 billion for its own account and $6.6 billion held for participants in loan syndications.

Please find the ASrIA Report at: http://www.asria.org/publications

Association for Sustainable and Responsible Investment in Asia

Association for Sustainable and Responsible Investment in Asia

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