Contextualising ESG Funds' Engagement Strategies in Asia

Abstract

Studies show that funds with ESG orientation vote differently and have different investment strategies as compared to their non-ESG counterparts. Asia poses special challenges for ESG funds because of its regulatory restrictions, concentrated shareholding structure, political concerns, and questionable ESG data. In this paper, we examine the various engagement strategies that ESG funds have implemented to further their sustainability objectives in Asia by first identifying some of the major legal and structural obstacles that ESG funds, especially foreign ones, face in this region. Second, using hand-collected data on ESG funds operating in Asia, we construct an ESG Funds Engagement Pyramid to detail the strategies generally used by ESG funds. Finally, despite the engagement challenges faced by ESG funds in Asia, we demonstrate that certain notable features in Asia can address some of the difficulties and obstacles posed by Asia’s investing climate and may support the engagement strategies of ESG funds.

Keywords: ESG Funds, engagement strategies, Asia, concentrated shareholding, interested party transactions, corporate governance

JEL Classification: K20, K32, K39