MoFo Asia Funds ESG Survey 2023: Putting the Sustainability Puzzle Pieces in Place
Sustainability work becomes a priority in every stage of the investment cycle, even as work on ESG policies and implementation has slowed in Asia
Sustainability work becomes a priority in every stage of the investment cycle, even as work on ESG policies and implementation has slowed in Asia
Morrison Foerster, a leading global law firm, today announced the results of its second annual Asia Funds ESG Survey, which shows continued demand from investors for greater accountability when it comes to ESG risk management integration, balanced with efforts by general partners (GPs) to incorporate responsible technology processes and mitigate issues around climate-related reporting and disclosure. The latest Morrison Foerster survey report, Putting the Sustainability Puzzle Pieces in Place, in conjunction with AVCJ, also reveals that Asia funds are incorporating sustainability efforts at a slower pace than last year, while GPs are weaving sustainability into the investment process, with 84% of respondents conducting non-compliance related ESG due diligence on most or all deals they consider.
“My clients definitely understand how incorporating sustainability considerations in their investment and asset management processes can increase a company’s valuation and mitigate risk from future regulatory requirements,” said Marcia Ellis, global co-chair of Morrison Foerster’s global Private Equity Group. “However, as the discourse and debate around sustainability matures globally, it’s also clear that ESG policies and their implementation will look different here in Asia due to various regulatory regimes, geopolitical developments, and macroeconomic factors.”
“The results of this year’s survey show that funds and GPs in Asia continue to see tangible benefits from evaluating risk through the ESG lens,” added Susan Mac Cormac, global co-chair of Morrison Foerster’s Global ESG Group. “I have worked with companies and funds that have been doing this for well over two decades now. And the reason they remain committed to integrating ESG and sustainability considerations is that the programs we design allow them to see around corners, including preparing for emerging risks like cybersecurity and capturing opportunities like responsible tech.”
Survey Highlights
ESG resources have increased while work on sustainability policies and implementation has slowed—43% of respondents have both an ESG committee and an ESG specialist, up from 8% in last year’s report, but 90% of respondents have made no recent changes to their ESG policies or work on implementation of those policies.
Sustainability is a consideration at each stage of the investment process—84% of respondents conduct non-compliance related ESG due diligence on most or all deals they consider, but only 23% of respondents have pulled out of an investment process after uncovering adverse ESG issues during diligence.
GPs recognize the potential for sustainability performance to drive value and return—91% of respondents have invested in a company with negative or neutral ESG credentials, expecting to increase its valuation by improving these metrics, and 84% of respondents believe positive ESG metrics will increase the valuation of a target.
Responsible tech is a key theme for investment and sustainability in 2023—80% of respondents say they have adopted or make it a requirement to adopt responsible tech at portfolio companies, while a full 20% either do not take this action or are unfamiliar with the concept.
Push for innovation in a competitive global marketplace puts downward pressure on ESG integration—50% of respondents mention that there are competing priorities for tech innovation over responsibility and social considerations at their firm.
Sustainability work goes well beyond climate-related issues, with many GPs working particularly hard to make progress on diversity, equity, and inclusion (DE&I)—73% of respondents have identified clear and measurable goals on DE&I and 58% have conducted internal training on DE&I for management and staff and/or communicated the importance of DE&I internally and externally.
Greenwashing risks spur meaningful action across operations, portfolio companies and supply chains—70% of respondents have policies regarding ESG communications or green claims by portfolio companies, up from 54% a year ago.
GPs face significant regulatory and operational challenges—53% of respondents cite the need to keep pace with rapidly evolving regulatory regimes as the most significant challenge, but the lack of transparency and reliability of ESG data comes second at 43%.
To download the full report, access a quiz to evaluate where your company is on the ESG journey or listen to the Asia sustainability puzzle podcast series, visit the report page.
Methodology
In the second quarter of 2023, on behalf of Morrison Foerster, AVCJ surveyed 100 Asia-headquartered Fund GPs each with assets under management of at least US$1 billion to gain their insights on how sustainability (including economic, environmental, and social sustainability) considerations are impacting their investments and the market. The respondents included private equity funds, credit and special situations funds, sovereign wealth funds, insurance asset managers, and pension funds. By geography, 35% of respondents were based in China/Hong Kong, 25% in Japan, 15% in India, 15% in Southeast Asia and 10% in other Asian jurisdictions, including Taiwan and South Korea. All responses are anonymous, and the results are presented in aggregate.
Practices
Industries + Issues
Regions