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What global markets can learn from Asia’s unique ESG approach

29.05.24

By Maddy Thirsk, Capital Markets

This blog examines Asia’s distinct approach to environmental, social, and governance (ESG) investing practices, contrasting it with strategies across Europe and the US. Highlighting cultural impacts and regulatory differences, it offers insights into how global markets can learn from Asian perspectives on ESG.

When confronted with a challenge, we often have two choices: brush it under the rug or tackle it with a new approach, if possible, drawing inspiration from others that have surpassed the challenge. When it comes to ESG, it is essential that global market economies opt for the latter.

Today, we are seeing environmental, social, and governance (ESG) principles, once regarded as the holy grail by many companies, forcing these same firms into a corner. What started as a retreat from these principles in the US is now gathering momentum in Europe [i], where doubts are surfacing over the prioritization of ESG investment principles.

Financial giants like BlackRock are leading this trend, strategically distancing themselves from the term by quietly scrubbing ESG from their marketing strategies. This shift, echoed by outflows from sustainable funds [ii], has garnered enough attention to earn itself a name: ‘greenhushing’[iii]. Driven in part by stricter ESG regulations, this trend could mark a significant turning point in the journey towards more responsible investing, with the concept increasingly drawn into the political sphere as the US presidential election approaches.

But against this fast-evolving backdrop, one region’s commitment to ESG remains as steadfast as ever. With its unique regulatory approach, emphasis on qualitative criteria, and cultural prioritization of corporate responsibility, Asia offers invaluable lessons for navigating the complexities of responsible investing.

During my trip to Aspectus’ recently launched Singapore office [iv] last month, I saw firsthand the region’s bustling sustainable finance scene, buzzing with energy and fresh perspectives. It got me thinking: what can global markets learn from Asia’s unique take on ESG?

Culture and politics: The age-old debate

During my time in Singapore, I witnessed a clear demonstration of both the government’s support for its people and citizens’ unwavering sense of commitment and responsibility. Take the daunting prospect of buying a house in London, for instance. I found myself discussing Singapore’s generous housing grants with a colleague, and it soon became apparent why Asia’s ESG narrative is one characterized by a cultural emphasis on corporate responsibility, rather than politicization.

In Asia, the notion of corporate responsibility is deeply ingrained in cultural values and societal norms. Businesses are expected to act as stewards [i] of the communities in which they operate, demonstrating a commitment to sustainability, ethical conduct, and social welfare. This cultural ethos fosters an environment where ESG principles are embraced not as political agendas, but as integral components of corporate governance and business ethics.

This cultural importance also came through in extensive primary research we conducted for an upcoming ESG whitepaper, where not even a fifth of APAC-based marketers said they do not care about ESG factors. More insights to come on this topic towards the end of May in our ESG whitepaper [ii].

In the US, on the other hand, investor interest in ESG is declining, possibly due to the way the term has been weaponised and used as a pawn in the never-ending game of political chess waged in Washington. Shareholder support for ESG proposals is decreasing amid rising divisiveness as we draw closer to this year’s presidential election. Investors are withdrawing from sustainable funds and managers are launching fewer ESG-focused products [iii], indicating a shift in the American investment landscape.

Asia’s Goldilocks Approach to ESG Regulation

Increased regulatory scrutiny is a steadfast fixture in today’s financial landscape, but the approaches taken by different regions are telling. We are seeing divergence between the EU and US approaches to ESG regulation, with Europe imposing stricter requirements while the US rolls back planned regulations amid political opposition. Both strategies could conceivably lead to a notable increase in greenhushing. Meanwhile, Asia is taking a more nuanced approach, focusing on qualitative definitions rather than rigid classifications.

Across Europe, asset managers are struggling to adhere to demanding regulations [i] such as the Sustainable Finance Disclosure Regulation (SFDR). Here, the regulatory focus is on classification [ii], with funds falling into distinct categories like Article 8 and 9 based on their emphasis on environmental or social characteristics. Meanwhile, Asian regulators prioritize defining ESG funds themselves, taking a different path.

On top of this, ESG now faces a regulatory pushback [iii] of its own, with the EU’s recent Green Claims directive cracking down on sustainability claims made by companies. To some minds, Europe has over scrutinized and overcomplicated the sustainable investment process and the way in which funds market themselves, which in turn could prompt firms to resort to greenhushing.

Therefore, it is worth considering that perhaps Asia has the right idea by focusing on qualitative criteria, offering a nuanced understanding that quantitative metrics often miss. This way, companies can convey their ESG efforts, sidestepping the pitfalls of mere quantitative metrics and evading the temptation of greenhushing.

Should firms across Europe and the US be given the benefit of the doubt, allowing more room for dialogue rather than continuing to crack down on classifications?

The US, caught in a political tug-of-war over ESG, isn’t offering much clarity. And Europe’s unwavering regulatory grip seems unlikely to loosen soon. But a peek at Asia’s playbook provides may offer valuable lessons. While we cannot presume an imminent change in the US’ politicization of ESG or Europe’s steadfast regulatory stance, it is still important to explore how other regions approach ESG if we are to successfully tackle greenhushing, rather than merely brush it under the rug.

About the author

Maddy is a senior account executive in the Capital Markets team and joined Aspectus after completing a master’s in international management at King’s College London and bachelor’s degree in international relations at the University of Leiden in the Netherlands. Maddy is fluent in Italian and proficient in German.

Maddy’s role involves being a day-to-day contact for clients, providing focused advice on media relations across the UK and APAC regions. She recently visited Aspectus’ Singapore office to strengthen media relationships in the region, gaining valuable insights that fuel this blog post. Since starting the role, Maddy has become ever more curious about the ways in which regulatory trends will shape the financial sphere and is excited to continue learning more about the capital markets.

Key takeaways

Q: What is greenhushing, and how is it affecting ESG investing?
A: Greenhushing refers to firms downplaying or omitting their ESG initiatives to avoid regulatory scrutiny. This trend is growing, particularly in the US and Europe, as firms face increasing regulatory demands and political pressure.

Q: How does Asia’s approach to ESG differ from the US and Europe?
A: Asia emphasizes cultural responsibility and qualitative definitions of ESG regulation, avoiding the rigid classifications and political battles seen in the US and Europe.

Q: What lessons can global markets learn from Asia’s ESG strategies?
A: Global markets can benefit from looking at Asia’s nuanced regulatory approach, emphasizing cultural responsibility and qualitative measures, which provide a more transparent approach to ESG.