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SustainabilityTalks: Investing in the transition, perspectives from Asia with Impax
36 Plays10 months ago
In this episode of SustainabilityTalks, we hear the investor’s perspective. The conversation revolves around how corporate governance reforms and various market developments around Asia are driving corporate value and investment returns, as well as around some of the exciting investment opportunities currently in focus for Impax Asset Management, the world’s largest dedicated impact and transition focused investor.
Listen as Natalya Oram, Director, Global Sustainability Solutions, Market & Securities Services, HSBC discusses the history of Impax and how it started, as well as the direction of travel for investors as the world transitions to a low carbon economy, with Nana Li, Head of Sustainability & Stewardship, Asia-Pacific, Impax Asset Management.
Hosted on Acast. See acast.com/privacy for more information.
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Transcript
Introduction to HSBC Global Viewpoint and Sustainability Talks
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Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
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Make sure you're subscribed to stay up to date with new episodes.
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Thanks for listening.
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And now onto today's show.
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Hello and welcome to Sustainability Talks.
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My name is Natalia Oram and I'm from the Global Sustainability Solutions Team at HSBC Markets and Security Services.
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It's my great pleasure to welcome as our guest speaker, Nana Lee, Head of Sustainability and Stewardship for Asia Pacific at Impact Asset Management, which is a specialist asset management firm with over 25 years of experience focusing on impact investing and investing in the transition.
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Nana, welcome to our podcast.
Impax's Evolution and Nana's Leadership in ESG
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Would you mind kicking us off by introducing yourself and also introducing us to Impax and what makes it unique?
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So Impax Assay Management is an asset management company founded in 1998 in London.
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What makes it special is this company actually started as an environmental advisory firm.
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So at first, it was founded by our CEO Ian Simp.
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to want to give more creditable information about the environmental markets to other investors.
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So that was the idea.
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Quickly, they found actually there are quite good investment opportunities in this field.
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And they suddenly transferred into an asset management company very early in the early 2000s.
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From there to now, over 20 years, we have now become probably the world's largest sustainable investor.
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For this reason, this company has become very focused on opportunities raising from the transition to a more sustainable economy.
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That's the phrase we use.
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And there indeed has been quite a lot of interest and opportunities that are raising in this field for investors and also other stakeholders that are
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care more about how the companies and also the market are going to survive in this changing global environment in terms of global economy and also other environmental issues.
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So that's the story of Impax.
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And we are also listed company in the London Stock Exchange in the early 2000s.
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Before we transit into an asset management company, we were also a data provider and helped the London Stock Exchange to do its first EIC index.
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We don't provide that service anymore, but still we have quite a lot of data and models internally that we use in our investment process.
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And recently, for example, this March, we won the Best Asset Manager Award in London, in UK, Luxembourg and Netherlands from Morningstar.
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So myself joined IMPACS just about two years ago.
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I'm the leader for the ESG sustainability and institutional work for Asia Pacific based out of Hong Kong.
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My background before joining INPEX was mostly on governance issues.
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Many friends know me from Asian Global Governance Association, which I used to work for about 10 years.
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And then after joining INPEX, I've been learning a lot about all affronts of ENS and G, and also finding my interest to more markets in Asia-Pacific.
Corporate Governance Progress in Asia
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I think as an investor, it's a very different perspective when you were an independent researcher trying to talk to regulators and companies.
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Especially when you're talking to companies, it's more relevant to your daily operation than work, how they're going to react to your requests and how you are trying to push for some changes on their daily operations.
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Thanks, Nana.
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That's a comprehensive introduction to Impact.
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It's very great to hear you joining the company with your very relevant experience with ACGA.
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Actually, let's take a closer look at that.
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So, you know, you mentioned you spent over 10 years working with ACGA.
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Could you maybe share some of the highlights as to what's been happening in corporate governance in Asia?
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Sure.
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I joined ECGA in early 2014.
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And I think I'm very lucky because ECGA was founded in 1999 and it's been 15 years before I joined.
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I think in the past 10 years, I really, I was lucky enough to witness a lot of turning points in the crop gaps developments in Asia.
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Those policy level, there has been more policy attention paid by regulators this very topic.
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And also on the
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engagement level.
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So it has been a lot more, well, stewardship code was not even introduced before 2014.
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So Japan was the first market to have stewardship code in Asia.
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And ever since that, there has been a lot more major markets in Asia follow that trend.
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So the dialogue we are having with companies, for example, now is definitely on a different level.
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as when we could talk to companies 10 years ago.
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And this is even with many large, very large international companies based in Asia.
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Yeah, that sounds really exciting, especially as you said, the dialogue has changed.
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Could you maybe say which are the markets that you do see the biggest progress being made?
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Obviously, Asia is very fragmented, as you know.
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We've got a lot of different markets, all with their own levels of engagement on sustainability, different regulation, different taxonomies, different disclosure requirements, etc.
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So from maybe that corporate governance perspective, which markets have you been most focused on because you see the biggest progress being made?
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So I focus on all the major key economies in Asia Pacific, including maybe Korea, Japan, China, Hong Kong, Singapore, Malaysia, India, Australia, etc.
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On the engagement level, I think the progress has been made really impressively for Japan and for markets like Taiwan and India, etc.
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And Korea also, to some extent, the openness of the companies.
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is very different from like 10 years ago.
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And this is a combination from the regulatory pressure, but also more interest and also more skilled investors, I think, in place to try to push for the for the dialogues.
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And with these changes, how do you see these new practices, new levels of communication and more openness from companies?
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How do you see that impacting and driving investment and returns?
Regulatory Changes and Corporate Practices in Japan
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Yeah, I think that's a very good question.
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I mean, there are two different angles.
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One is for the companies themselves, I think given that they are more open to either forced or voluntary talk to companies, I mean, talk to investors, there are more cases that they would better understand what's the investor's expectations.
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So not just on financials.
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Actually, nowadays, investors have a lot to expect on the non-financial parts of the company because we are also pressured by our clients.
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to really focus on those issues.
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And also, it is important for the companies to pay attention to some risks that are not currently reflected on their financial statements, because it's going to affect their business operations and also business models, even in the longer term.
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And the other thing is, well, for us, for investors, we also see that there has been more changes that companies are taking to fulfill our requests.
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So previously, sometimes we could have meetings with the companies, but there's never a follow up.
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And also there's almost never changes after the
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So it's really just phone over substance.
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But nowadays, I think we could have deeper conversations with the companies.
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And also once we have momentum going, then we could have further requests and also further dialogues with the companies on issues that...
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they have changed and also something we see they can still make a little bit of improvements.
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So that has been very good.
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So you mentioned Japan is one of the key markets where you've seen a lot of changes, particularly kicking off by that new stewardship code.
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being the first market in Asia to do so.
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What are some of the other drivers that you look for where you're saying, okay, this is a market worth focusing on, we're getting positive momentum, and this is where we see opportunity for specialists like yourself to engage more?
Collaborative Engagements for Sustainability Initiatives
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What are the other things that you look out for?
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Japan is really a very good case study.
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I think just before I joined the ECGA, it was almost 10 years for ECGA to try to engage with regulators and companies.
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But then because of 2014, there was the Stewardship Code and it was under the Arab economy's three arrows.
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One of them is to try to improve global governance of Japanese companies.
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So that governmental back really gave a big push to all the regulators and companies to pay much more attention to this issue.
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And then 2015, Japan was the last market in Asia to introduce corporate governance code.
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But it was a very useful guidance and it really had made a change to how companies do the disclosure and also do they govern their boards and also their operations.
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Some of the longstanding issues in Japan, for example, Quashar Holdings.
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So we've been engaging with quite a lot of regulators in Japan on this issue for 20 years.
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And they were issued.
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And recently, you know, the FSA has a corporate action program.
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So they're trying to pay more attention to cost of capital and also the corporate value of Japanese companies.
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Quashara holding is definitely one thing we've been talking to both FSA and MATI for a long time.
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I think in April, ACGA actually drafted a letter on this very issue, and the impacts was one of the over 30 members co-signed to this letter and to send it to the FSA.
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And I think they are going to further discuss this issue when we will be in Japan later this year.
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And the other thing is, for example, gender diversity is another issue that Japan has been really lagging behind other major markets in Asia.
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Again, this issue is a longstanding issue.
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We've been talking to Japan's regulators for a long time and not until September 2022, ACGA also drafted a co-signed letter to the FSA and TSA.
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TSE, token stock exchange, on this issue.
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And the impacts also co-signed to that.
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And this letter was submitted to the cabinet office of Japan in January last year.
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And then I think it's translated into the President Kinashi's statement in April about 30%.
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senior management and female leaders in Japanese companies by 2030.
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Last June, FSA made a statement to endorse this idea and asked the TSE to actually make a policy around this issue.
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And in September last year, ACGA and the Impacts actually co-organized the roundtable on this very topic.
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And we invited officials from the Fabian office, from regulators, investors, companies to join the roundtable to discuss this topic for about two hours.
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And it was attended by 70 attendees.
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It's a quite live discussion.
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After that, actually, I'm approached by a few female investors, local female investors in Japan to write a book.
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about this topic.
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So this book is ongoing and we are aiming to publish this in November.
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Wow, congratulations.
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That's really testament to your influence in the industry.
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And going back to that, you talk a lot about collective action and collaboration.
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Do you see this as really key to enabling the work within stewardship roles and sustainability, kind of banding together with other investors to be able to influence policy regulation and companies as well?
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Yes, definitely.
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And that's also one area I see a lot of changes over the last 10 years.
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At the beginning, it's not investors wouldn't collaborate.
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It was just difficult given some technological still burdens.
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And also companies are not even willing to talk to you.
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So it's very difficult for you to then come together to talk to them.
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We have had the case that a bunch of investors, this is very big institutional investors, came to Korea back in 2014, talked to a very large company, and the company was just not willing to meet because they just don't meet for investors.
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So that was in 2014.
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The world has really changed since then.
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I think now we talk to this very same company, and they would have two teams of sustainability people talk to us every time we go into Korea.
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But that's just one company.
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Also for others, I think there has been a lot more acceptance for companies to see collaborative engagements.
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And for example, I chair the China Working Group for ECGA, and the China Working Group has about 50 members.
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And these are mostly asset managers and asset owners globally.
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that have a strong interest in the Chinese market.
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And for that China working group, we have five ongoing collaborative engagements with the largest companies in the market.
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So this including technological company, state-owned company, banking, and also some other large market value, large market cap company in the market.
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EV company as well.
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So now we have this
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ongoing engagements with all five.
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But I have to say it was only this year we have started all this because it took us almost one or two years to get access to the company and for them to be willing to talk to a group of investors.
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Just one other thing is there is also regulatory burdens for investors to do that.
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So for example, Japan, there's a rule called the Large Childhood Reporting Rule, which is basically stopping investors to collaborate if you have collectively more than 5% of the companies in the name of security concerns.
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And it could be general in some cases because every market has similar rules and they don't want the key assets or key industries to be controlled by foreigners, which is understandable.
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But it's just for some cases, for example, this previous case in Japan, it was very deterrent for investors if they want to collaborate on any issues because there's very strong legal concerns.
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And this rule, the Financial Instruments and Exchange Act rule was only just changed in June.
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So they finally amended.
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And it was also an ongoing engagement between ACGA and also investors with regulators for over seven, eight years on this issue.
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So very good now.
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We have finally lifted the
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burden to talk to companies collaboratively in Japan.
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And I think for other markets like Korea, like China, Taiwan, etc., there are similar concerns for investors.
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So if you are genuinely trying to improve the company's corporate governance for long-term returns, it should be welcomed, I think, by all the companies and regulators.
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I would definitely appreciate clearer guidance and also
Investment Focus: Transition Economies and Digital Transformation
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instructions on this from various markets.
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So we're right in the middle of changes still happening very much in Asia across different markets and in differing degrees.
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So it's exciting at the moment for you because you're seeing the changes take place.
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You've seen the positive returns and the positive impact that this makes.
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It helps the company as well as the investor understand that company's risks and opportunities holistically, considering, as you said, the financial, but not just financial, the non-financial short and long-term risks.
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And so inevitably, that should help to generate better returns and more stable returns for the company and for the investor as well.
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So that's very interesting.
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Could you tell us a bit more about any particular areas of focus, the impact of looking at some of the key investment themes that you and your team are focusing on at the moment?
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Given that we are transitioning from an environmental advisory firm, so our focus has always been on companies that are really doing or contributing to the transition of the economies for companies like solar energy, upstreams of solar energy, and also energy transition, water management, food, sustainable food is also an addition for us in the last 15 years.
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And recently, we have been paying more attention to some clean transportation and also digital transformation.
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I think these are the two key areas that we are also taking a look at, for example, like cloud computation and also some other areas related to the supply chain of that.
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Thank you.
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That is very interesting.
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And I think technology as an enabler of the transition is definitely a key theme that we see across the markets from sustainability-focused investors, but from investors in general, given especially the big trend with AI at the moment.
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And AI can also be a big enabler to
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help transition.
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So other than the investment themes that you mentioned, what are some of the other trends that you're looking at or trends to watch within the sustainability space?
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Obviously, corporate governance and a lot of the reforms there across the markets in Asia are a big thing to look out for.
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But maybe globally, what do you see as some of the big drivers and trends to watch, maybe contrasting Asia and Europe and the rest of the themes that you see or your teams and counterparts in the other parts of the region, other parts of the world looking at?
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I can say on the theoretical level, because Asia has been a later start on the whole ESG transition and or sustainability
Stakeholder Roles and Policies in Sustainability
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transition.
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So the focus so far, for example, ESG is still mostly on E. I think environmental development and how do you transit to a low carbon economy and for countries like China, it's very real that they are the key player.
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in this whole story.
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So it has to, depending on China's transition story, that the whole world can be really make net zero in like decades, in several decades.
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So that is a real concern.
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And on the reality, I think there is also the economic conditions and also there's a lot of geopolitical tensions
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that companies are facing and also countries are facing.
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So I think they have to really take that into account.
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And how do you make a consistent policy within this changing governments and also changing geopolitical atmosphere, I think is a key question.
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And also how the customers and investors, so key stakeholders in this whole story, are going to react to this whole transit and how quick or how slow they could accept
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of this transition and also how affordable it could be in this transition.
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And I think this is also very important questions, I think, for governments to answer.
Investor Interest in Sustainability and Future Impact
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It's a really good point you make about the role that all the stakeholders play in sustainability and the transition.
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And you have to take into account a lot of different perspectives.
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Maybe taking a look at one of the key areas, which is the next generation, how do you see that influencing investment opportunities or the way that investors look at the market?
00:18:45
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Well, I have to say investors, I think you know this better than me, I think investors as a whole community is very different.
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It's like any community, you can call us all investors, but everyone has very different agendas.
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But I have to say,
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Generally speaking, I think over the last five years, there has been more and more investors really caring about sustainability environments of markets and also of companies.
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If companies are not performing well on the sustainability front for investors like us, I think it's going to be very difficult for us to build a conviction on these companies.
00:19:20
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And also it is true that given how hot we are now in Hong Kong and for the past months, it is so true that you have to really be able to manage these risks and also tell us how you're doing this so that we could be confident to put our money in your company and over the long term so that we know that you are taking this into account for your strategy making and also for ongoing operations of your company.
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Thank you.
00:19:46
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That's very interesting.
00:19:47
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Maybe just to close, it sounds like you have your hands full in the coming years, continuing your work with ACGA, engaging with companies to help drive their sustainability agenda, and also working with your investment team
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to uncover and research these many exciting investment opportunities presented by the structural story and the shift of the global economy towards low carbon, which we know is of particular relevance to Asia.
00:20:13
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And you mentioned China at the forefront of all sort of policy and making at the moment.
00:20:18
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So it's been fascinating to hear about what you've been up to with impact and how you manage the challenges and opportunities of being a dedicated sustainability and impact focused investor.
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So thank you so much for sharing your insights with us today.
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Thank you for joining us at HSBC Global Viewpoint.
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We hope you enjoyed the discussion.
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