Sustainable investing in Asia is taking off in a big way. As an astute investor, are you ready to create a positive impact on the world with your investments?
Sustainable investing is the integration of Environmental, Social and Governance (ESG) factors into the selection and management of investments. The increased focus on ESG issues by regulators and companies are driving Asia’s economic and social development. You too can play a part, while capturing opportunities from these developments.
How a company’s operations affect the natural environment and vice versa.
What are the key environmental concerns to be aware of?
The relationship between a company and its employees, suppliers and communities.
What are the important social issues to manage?
The systems a company has put in place to ensure sustainable corporate practices.
Are the interests of all stakeholders taken care of?
Sources: Manulife Investment Management, MSCI ESG Investing and MSCI ESG Research. Selective ESG issues for illustrative purposes only, this is not a full list.
Home to 60% of the world’s population1, Asia is responsible for half of global carbon emissions2. With the growing pressure on Asia to tackle pressing environmental challenges and recover from the pandemic with targeted social and other sustainability measures, it’s time to capture the exciting investment opportunities ahead.
Investors, businesses, and consumers are becoming more aware that they can play an important role in ESG while still meeting their financial goals, fueling the demand for sustainable investments. Investors are beginning to recognise the benefits of Asian credits and that sustainable investments have historically outperformed over the medium to longer term.3
The global issuance of sustainable debt (green, social, and sustainability bonds) increased by US$660 billion in the first half of 20214, with Asian issuers accounting for nearly 17% and expanding at a rate that could surpass the annual amount of US$770 billion in 2020.
However, it is vital to remember that not all sustainable bonds are equal. Investors will ultimately need to undertake robust analysis or engage research expertise to avoid risks like greenwashing and that’s why active managers who take a holistic approach can help investors navigate the best opportunities.
Sustainable debt issuance per region
(Annual, US$ billion)
Source: Bloomberg New Energy Finance, Sustainable Finance Market Outlook Data Set, as of December 2021. Data updated half yearly.
We believe that sustainable investing goes beyond meeting ESG criteria. Our sustainable bond strategy encompasses a holistic approach that leverages our local expertise, on-the-ground research, extensive company engagements and investment capabilities to help investors avoid ESG-related and company-specific risks, and to encourage debt issuers, entities, and stakeholders to embrace sustainability best practices.
Industry breakdown (%) of Manulife Sustainable Asia Bond Strategy
Source: Manulife Investment Management, data as of 30 November 2021. JESG JACI: JP Morgan ESG Asia Credit Index, JACI: JPMorgan Asia Credit Index.
Illustration of Manulife IM Asian credit issuers’ ESG scorecard
For illustrative purposes only.
Asian credits are screened using a comprehensive ESG framework
For illustrative purposes only. Source: Manulife Investment Management, JPMorgan ESG Asia Credit Index (JESG JACI), as of 31 December 2021. * The figure 239 reflects the number of Asian credit issuers approved by Manulife IM Asia Credit Committee.
Manulife sustainable Asia Bond Strategy’s ESG bond exposure since September 2020
Source: Manulife Investment Management, as of 30 November 2021.
Why we engage:
How we engage:
I. Climate change mitigation
Environmental theme: provision of clean energy and low carbon emissions to mitigate climate change
(Tons CO2e / $M revenues)*
Source: Manulife Investment Management, JPMorgan indices, 31 December 2021.
II. Aging population support
Social theme: the provision of retirement solutions to Asia’s aging population
Companies offering retirement solutions
Source: Bloomberg, JPMorgan indices, Manulife Investment Management, Data based on weighted average percentage of corporate bonds universe for the Manulife Sustainable Asia Bond’s representative portfolio and JPMorgan indices. As of 31 December 2021.
III. Superior governance promotion
Governance theme: companies with strong corporate governance structures
Board & executive diversity and independence
Source: Manulife Investment Management, JPMorgan indices, 31 December 2021.
# The JPMorgan ESG Asia Credit Index (JESG JACI) tracks the total return performance of the Asia ex-Japan USD-denominated debt instruments across the Asian Fixed Income asset class, including floating, perpetual, and subordinated bonds issued by Sovereign, Quasi-Sovereign and Corporate entities. The index applies an Environmental, Social and Governance (ESG) scoring and screening methodology to tilt toward green bond issues or issuers ranked higher on ESG criteria, and to underweight or remove issuers that rank lower.
*Carbon intensity data sourced via Trucost ESG Analysis and Manulife IM. Carbon intensity refers to Scope 1 & 2 Tons CO2 equivalent emissions per million USD revenues. Definitions: “Scope 1” = All Direct Emissions from the activities of an organisation or under their control. Including fuel combustion on site such as gas boilers, fleet vehicles and air-conditioning leaks. “Scope 2” = Indirect Emissions from electricity purchased and used by the organisation. Emissions are created during the production of the energy and eventually used by the organisation.
Received an A+ from UN PRI for ESG strategy and governance, and integration in listed equity and fixed income SSA (sovereign, supranational, and agency debt)8
1 HYDE Database 2016 & UN World Population Prospects 2019.
2 BP Statistical Review of World Energy 2019.
3 Source: Morningstar “Do Sustainable Funds Beat their Rivals?”, 16 June 2020.
4 Source: Bloomberg New Energy Finance, Sustainable Finance Market Outlook Data Set, as of June 2021. Data updated half yearly.
5 We consider that the integration of sustainability risks in the decision-making process is an important element in determining long-term performance outcomes and is an effective risk mitigation technique. Our approach to sustainability provides a flexible framework that supports implementation across different asset classes and investment teams. While we believe that sustainable investing will lead to better long-term investment outcomes, there is no guarantee that sustainable investing will ensure better returns in the longer term. In particular, by limiting the range of investable assets through the exclusionary framework, positive screening and thematic investment, we may forego the opportunity to invest in an investment which we otherwise believe likely to outperform over time.
6 “Best-in-class” ESG is industry terminology referring to an investment approach that selects companies that are leaders from an ESG perspective.
7 Our commitment to ESG bonds: We are committed to a “true-to-label” ESG fixed-income strategy. We show this in two ways. First, the strategy is benchmarked to the JESG JACI, which tracks Asian issuers with strong ESG practices. We utilise normative and positive screens as tools in our process. Ultimately, we are focused on achieving positive ESG outcomes. Second, we have voluntarily established a minimum threshold, whereby 15% of the SAB strategy’s invested capital must be in ESG-related bonds. We also review all ESG and green bonds to ensure that they are true to the label. This commitment is essential, as investors need to be careful of ESG-related strategies that potentially invest in corporate or sovereign bonds that overpromise (known as “greenwashing”) to boost yield or strategy performance.
8 Based on 2020 PRI report. For more information on PRI’s methodology and for Manulife IM's full PRI assessment and transparency report please see: https://www.manulifeim.com/institutional/global/en/sri-report.
9 Most recent PRI Leaders’ Group. PRI has announced that the 2021 PRI Leaders’ Group on Stewardship has been postponed.