Investors in Asia Pacific aim to harness investment opportunities provided by the energy transition as they increasingly expand into private assets, according to Schroders’ flagship Institutional Investor Study, released on Oct 5.
The annual study, which spans 770 investors across 36 regions and US$34.7 trillion ($47.46 trillion) in assets (including 195 investors from the Asia-Pacific region), has identified that inflation and geopolitical uncertainty remain acute concerns for investors.
This is despite expectations a year ago that they would subside.
Over the next 12 months, more than half of investors surveyed expect geopolitical uncertainty and rising inflation to have the greatest impact on portfolio performance.
This is unsurprising, says Schroders, with decarbonisation, changing demographics and deglobalisation all having the potential to keep inflation high.
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These macro themes are also driving investors to change their portfolio allocations. For example, in response to the growing deglobalisation trend, over half of APAC respondents believe investors will look towards investing in companies with more localised supply chains. They believe developed market equities (35%) and private equity (28%) will present the best opportunities over the coming years.
Opportunities in net zero
This year’s study has found that investors believe the transition to net zero offers significant opportunities.
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More than two-thirds (69%) of APAC respondents think it is “likely” or “highly likely” that the energy transition will spur investment in innovation, creating “significant investment opportunities”.
Around half of APAC investors believe that infrastructure and renewables are best-placed to capture the investment opportunities presented by decarbonisation trends in the medium term.
With the asset classes poised to benefit from the green technology revolution, 46% of APAC respondents noted that they expect to increase allocations to infrastructure over the next 12 months.
More broadly, 58% of APAC respondents are seeking to proactively harness the investment opportunities presented by the energy transition and related technological revolution through a greater exposure to private assets.
Similarly, 71% of APAC respondents expressed an appetite for investing in new sectors, such as nature-based solutions and green hydrogen, to achieve portfolio diversification and expand into new themes and asset classes. APAC respondents were more optimistic than their global peers, besting the worldwide average by 9 percentage points.
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Approaches to sustainable investing
According to the study, institutional investors are increasingly looking to invest thematically and enhance their impact investment focus.
In addition, the majority of investors believe sustainability and impact strategies will support their objective of achieving long-term financial returns, with 35% of APAC investors highlighting having a positive impact on people and planet as one of the top drivers for sustainable investing.
APAC investors identified infrastructure, natural capital and biodiversity as the best-suited asset classes within private assets to deliver their sustainability and impact objectives now, with this focus growing as their investment timeframe extends.
However, today’s study demonstrates that support is needed to help investors with impact investing, with measurement being a key challenge.
Close to three-fifths of APAC investors (58%) believe having an impact that is easily measured and understood to be the most important criteria when considering an allocation to impact-focused investments.
Furthermore, over half of respondents identified a lack of standardisation in terms of measurement, process, tools and metrics, among others, to be the biggest obstacle for investing in private assets strategies focused on sustainable investing.
Greater support needed
While half of global respondents have already made commitments to reaching net zero across their portfolios, close to a quarter of APAC respondents (24%) stated that they have no intentions of doing so.
Specifically, Europe, Middle East and Africa-based investors were the most committed to delivering net zero by or before 2050 and are implementing a strategy with interim targets (39%), while the majority of respondents with no commitment were based in the US (39%).
About half of global respondents think their organisation mostly needs support in measuring and tracking their net-zero path, up to 51% from 37% last year.
“We are starting to see new emerging trends in the seventh edition of the Schroders Institutional Investor Study as investors continue to grow and evolve their approach to sustainability,” says Mervyn Tang, head of sustainability APAC at Schroders.
APAC institutional investors are expecting climate policies to accelerate, even more so than investors in other regions, he adds. “59% thought it was likely for a shift in climate legislation to turn climate politics into concrete actions, compared to 51% globally.”
Infographics: Schroders
