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KBRA ESG KNOWLEDGE HUB

Why ESG Factors Matter in Asia Credit Investing

Integrating ESG factors can help manage downside risk and identify high‑quality businesses driving positive change.

AUTHORED BY:

Sheldon Chan, Portfolio Manager; Michael J. Conelius, Portfolio Manager; Samy Muaddi, Portfolio Manager; Carolyn Chu, Director of Research; Leonard Kwan, Portfolio Manager; Siby Thomas, Portfolio Manager;; Andrew Keirle, Portfolio Manager

Key Insights:

  • ESG investing is on the rise in Asia, where regional governments have stepped up disclosure requirements amid a drive toward sustainability.

  • We believe that ESG integration can help identify high-quality, forward-thinking businesses for investment and manage downside risks in credit portfolios.

  • For an investment to earn a position in our Asia Credit Bond Strategy, it should satisfy a three-step process with ESG analysis embedded at every stage.

Already mainstream in Europe, responsible investing is fast becoming a key consideration in Asia as well. The integration of environmental, social and governance (ESG) factors into investment decisions has gained recognition as an important method of downside risk management and a driver of risk-adjusted returns. Looking specifically at credit investing, 60% of regional investors expect governance issues will impact corporate bond yields in 2022, while more than two out of five expect environmental and social factors will matter.¹

The ESG landscape in Asia should continue to evolve since it is still at an early development stage. We also expect that there may be a divergence in terms of which countries make the most strides in promoting ESG awareness and implementing reporting requirements based on their unique characteristics.

A growing push for responsible investing from across the stakeholder spectrum suggests that it is here to stay. Adapting an approach for Asia requires careful monitoring of the latest developments within the region along with a robust ESG research platform. We believe strategic investors who are able to do that should find themselves well positioned to drive positive change and capitalize on potential opportunities presented by the evolving ESG landscape.

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