The time to lead is now: the adoption of ESG analysis by Asian government pension funds

Asia's pension funds are among the largest and fastest growing pools of capital in the region and their influence in the capital markets will continue to grow, especially as asset allocations diversify. The integration of environmental, social and governance (ESG) criteria into investment decisions is being recognised by astute investors as an essential part of investment due-diligence and strategy.

This report aims to provide users with the tools to understand how pension funds can act as catalysts for sustainable development in a manner that is in full harmony with their fiduciary investment responsibilities. It also argues that pension funds and sustainable development are catalysts to help meet the Millennium Development Goals, particularly Goal 7 on environmental sustainability

The report is presented as a Toolkit, and also discusses proxy voting, infrastructure and provides country profiles on China, India, Indonesia, the Philippines and Vietnam.

Main Findings:

• increasing numbers of global pension funds are diversifying into all asset classes, including equities, in order to meet long term performance returns and balance risk; funds are also adopting aspects of ESG into their investments and a wide range of ESG best practice can be identified
  
• Asian funds have the opportunity to leapfrog: although some Asian pension funds are leading the way, most are lagging in ESG adoption and hence have the opportunity to adopt ESG strategies now and leapfrog to become global leaders. Taking a lead in fostering the adoption of ESG best practice among fund managers via tenders and pension investment policies is crucial
  
• in taking the long term perspective, pension funds have the opportunity to prioritise investments which demonstrate sustainability, and to influence strategic decision making
  
• the exercise of proxy voting rights has been emerging as perhaps the most common expression of responsible investment. As part of their fiduciary obligations to their beneficiaries, pension funds are expected either to vote proxies themselves or to instruct their asset managers how to vote on fundamental matters of corporate governance. Owing to their long-term time horizons, pension funds can make a real impact on the behaviour of management if they participate in regular dialogue and responsibly use their proxy votes at every opportunity
  
• Asian pension funds can play an important role in helping to improve corporate disclosure in Asia. These pension funds, by the collective size of their investments, can encourage corporations to give more prominence to longer term and ESG issues in their corporate strategies and reporting