ESG: What we're hearing from Asia investors

We wanted to share some themes coming out of our recent conversations with mega investor clients in Asia.

First, we are seeing a sustained shift toward a focus on emissions, rather than fossil fuels themselves. Put another way, rather than merely avoiding investments in fossil fuel businesses, we are seeing clients actively pursuing opportunities involving decarbonization and energy storage technologies, in part catalyzed by the slew of governmental support and fiscal incentives currently available or anticipated.

Second, we also are observing clients increasingly coalescing around the concept of climate adaptation (or adapting to the consequences of global warming), asking questions such as how a particular investment is positioned to navigate climate-related challenges such as rising sea levels. and increasing prevalence of extreme weather patterns.

Such questions are rising in importance as clients evaluate investment opportunities and monitor and manage their portfolios. Not only are investors asking more questions, but the questions they are asking are more pointed and probing (and clients are increasingly asking for those diligence questions to be supported by representations and warranties in the underlying transaction documentation).

Finally, we continue to see our clients shift towards a focus on the materiality of particular ESG-related risks for an investment, rather than on less clearly defined long-term aspirational goals. By considering environmental, social and/or governance factors to make an informed assessment of potential returns and risks, investors transform ESG from a value statement about social policy goals to a pecuniary one.

Even as the maturation of ESG-integration into the investment process for many of our Asian mega investor clients continues, one common question mark is how U.S. politics may factor into global approaches to ESG. Notably, we continue to have clients speculate about the potential impact of anti-ESG voices in the United States (particularly going into the 2024 election cycle).