Asia-first Transition Strategy Scouts Opportunities

Robeco’s Head of Fixed Income argues that the hunt for “perfect” forward-looking emissions data cannot stand in the way of progress.

Limited forward-looking emissions data must not deter investors from implementing transition investment strategies where they are most needed, an industry expert has told ESG Investor.

Thu Ha Chow, Head of Fixed income at global asset manager Robeco, deems that the asset management industry should play its part on the climate transition, and contribute solutions for asset owners.

“Most of the world has signed up to Paris, and many asset owners are committed to this trajectory, so we have to find ways to execute those goals,” she said.

Robeco plans to launch a new range of transition investing strategies in May, which will focus on the “most stark” opportunities. The first strategy will identify credible prospective investee companies across Asia, using Robeco’s portfolio of forward-looking metrics. This approach will eventually be expanded to other emerging markets.

New horizons 

The range of strategies will focus on public markets, investing in equities and bonds across various industries working on a sustainable transition, including those in the most carbon-intensive ones.

When considering potential investment opportunities, Robeco will aim to identify companies that can be considered “solution providers” and are decarbonising at a faster rate than their peers, Chow explained.

The group will draw on its suite of forward-looking metrics, including a climate traffic-light system for assessing the extent to which a company is aligned with a temperature pathway below 2°C. It will also use a climate solutions score to measure companies’ contribution to economy-wide decarbonisation efforts.

“Even though forward-looking emissions data is still difficult and patchy, the more we work in this area, the better it will get,” said Chow. “We will never get perfection right away. We can’t predict the future, but [our]metrics can help to paint a picture of where we’re going.”

In addition, Robeco will conduct sector-specific analysis, which will consider the remaining carbon budget allocated to a sector, the required and most likely pathway to a below-2°C scenario, the expected total production change for said sector, as well as the greenhouse gas (GHG) emissions scopes that are most material within it and which it can be held accountable for.

This will then be applied to prospective investment opportunities, with Robeco assessing how much a company needs to spend to align with the sector pathway and how that compares to the company’s stated capex plans, Chow added. “Such assessments will also need to be regionalised, as different jurisdictions have access to different technologies and capital.”

Last year, Robeco extended its Sustainable Investing (SI) Open Access Initiative to the public. Launched in 2022, the initiative aims to foster improved data transparency and sustainable investing standards by publicly sharing corporate ESG and Sustainable Development Goal (SDG) scores.

Increased interest 

Recent research conducted by the Asia Investor Group on Climate Change (AIGCC) noted that the majority of asset owners in the Asia-Pacific region have still failed to give clear net-zero mandates to their managers. Only 43% percent of assessed firms had integrated climate change considerations into their investment policies.

“Asset owners across Asia used to look at [sustainability] with a bit of scepticism, because they didn’t understand how it applied to them,” said Chow. “With regional regulators introducing the likes of sustainable finance taxonomies, there has been greater acceptance.”

Local policymakers have also been striving to bring clarity on transition finance regulation. The Monetary Authority of Singapore (MAS) published its Singapore-Asia taxonomy, with a category outlining which economic activities could be considered as opportunities for transition finance.

Emerging markets and developing economies (EMDEs) currently account for around two-thirds of global greenhouse gas (GHG) emissions.

In 2021, 69% of carbon emissions produced across Asia-Pacific came from coal, with overall CO2 emissions across the region having increased by 96% between 2000-2021, according to the International Energy Agency. According to Robeco’s own estimates, Asia alone will require almost half of the US$125 trillion still needed to align with the Paris Agreement and net zero by 2050 targets.

“We don’t think we have it all figured out,” Chow added. “There’s a lot of greenhushing going on because the industry expects perfection. Our emphasis isn’t that we know everything and that this strategy is perfect, but we know we’re on the right journey to having a positive impact.”

Read more articles like this on Regulation Asia’s sister publication, ESG Investor.

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