There is a mismatch between words and deeds amongst Asia’s general partners when it comes to actual implementation of ESG principles, according to a recent survey by Morrison Foerster.
General partners based in Asia are increasingly expressing concerns about ESG (environmental, social and governance) such internal policy development, allocation of new resources and investments in related talent. However, their actual action reveals a significant gap compared to this intention, according to a recent survey by US-based international law firm Morrison Foerster.
While all of the respondents stated that ESG criteria are included in their decision-making process on potential investments, only around two-thirds have set up an ESG committee that is dedicated to overseeing related matters.
Lacking Incentives
Even for funds that have established an ESG committee, there are questions about execution due to the lack of incentives.
According to the survey, there is a lack of clear linkages between sustainability and remuneration with only 14 percent of respondents stating that their compensation reflects the extent to which ESG goals or targets are met.
«While there has been progress, there is mismatch between ESG words and deeds in Asia,» the report said. «Our findings reveal that many fund managers are still at an early stage of their journey through the ESG maze—they have begun to put policies in place but are not necessarily embedding that work in operations and decision-making.»
Greenwashing Risk
Another major issue that may be overlooked is greenwashing risk, in light of the growing market of players vying for sustainable investment demand. According to the survey, slightly over half of the respondents have policies on ESG communications or green claims by portfolio companies. What’s more, only 22 percent of respondents claimed to have dedicated ESG professionals, making it all the more difficult to verify claims.
As a result, Morrison Foerster noted that there could be demand for more third-party verified data due to pressure from regulators and limited partners in the coming years.
ESG Focus
Among the ESG issues in concern, general partners in Asia have placed varying levels of focus. Certain issues have received greater emphasis with relevant ESG policies in place such as labor practices (87 percent), codes of ethics (82 percent) as well as data privacy and compliance with sanctions (74 percent). But elsewhere, the focus is lower in areas such as anti-money laundering (36 percent) and anti-corruption (18 percent).
«Many firms will, of course, have looked at these areas in the past, given their regulatory responsibilities, but the low numbers here may suggest GPs are at risk of taking too narrow a view of ESG,» the survey said. «These findings would look very different if asked of respondents in the United States or Europe, where regulation keeps governance front of mind.»
Morrison Foerster’s report titled «Navigating the ESG Maze» was produced in conjunction with private equity and venture capital data firm AVCJ. The survey was conducted with 100 Asia-headquartered fund general partners with at least $1 billion in assets under management.
