Investor Obligations and Duties in Six Asian Markets
In China, Hong Kong, India, Malaysia, Singapore and South Korea, there are compelling national interest reasons for policy makers to promote the incorporation of environmental, social and governance factors into investment practice. Issues include addressing air quality, improving citizens’ long-term health, reducing inequality, providing for an ageing population and attracting the international capital necessary to meet economic growth targets.
Investing prudently requires ESG factors to be considered in investment decision-making and to be part of the dialogue between investors and companies. This is consistent with the legal framework in all the markets studied in this report. However, despite growing awareness of responsible investment, many investors have yet to fully integrate ESG factors into their investment decision-making processes. Public policy and regulation are key influences. Currently, these markets have few formal requirements to integrate ESG factors, but investor obligations and duties are dynamic concepts that continuously evolve as society changes.
By working together, policy makers and investors can shape investment frameworks to clarify the obligations and duties investors owe to beneficiaries – obligations to embed ESG factors into investment decision-making, ownership practices, and ultimately, the way in which companies are managed. Investor Obligations and Duties in Six Asian Markets aims to bridge the needs of policy makers and investors in order to support the integration of ESG factors in investment markets.
Investing prudently requires ESG factors to be considered in investment decision-making and to be part of the dialogue between investors and companies. This is consistent with the legal framework in all the markets studied in this report. However, despite growing awareness of responsible investment, many investors have yet to fully integrate ESG factors into their investment decision-making processes. Public policy and regulation are key influences. Currently, these markets have few formal requirements to integrate ESG factors, but investor obligations and duties are dynamic concepts that continuously evolve as society changes.
By working together, policy makers and investors can shape investment frameworks to clarify the obligations and duties investors owe to beneficiaries – obligations to embed ESG factors into investment decision-making, ownership practices, and ultimately, the way in which companies are managed. Investor Obligations and Duties in Six Asian Markets aims to bridge the needs of policy makers and investors in order to support the integration of ESG factors in investment markets.
Options for Action
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CHINA
INCREASE PENSION FUNDS’ ESG FOCUS. The government could have all state pension funds (Pillars Ia and Ib), the National Social Security Fund (including its licensed fund managers and custodians), enterprise annuity plans and mutual funds take account of ESG issues, encourage high standards in investee companies and report on how they are doing so. EXPAND GREEN FINANCE. The government, through organisations such as the People’s Bank of China, is developing comprehensive policies to support the greening of China’s financial system. The demand from financial institutions for green investment is growing and can be further strengthened. SUPPORT RESEARCH. The Ministry of Human Resources and Social Security, the People’s Bank of China, the stock exchanges and the investment industry could work together to support high-quality academic research into ESG issues. |
INTRODUCE A STEWARDSHIP CODE AND MONITOR STEWARDSHIP OUTCOMES. The Ministry of Human Resources and Social Security could work with the investment industry to develop a code setting out institutional investors’ stewardship responsibilities. CONTINUE TO ENHANCE CORPORATE PRACTICE. Significant steps have been taken by central and provincial governments to reduce pollution and improve energy efficiency in Chinese firms. This should be continued and extended across all sectors and sustainability issues. This will focus investors’ attention on company performance and increase the pressure on companies to adopt environmental management systems and controls to manage their environmental and sustainability impacts effectively. ENHANCE CORPORATE DISCLOSURE. The Shanghai and Shenzhen stock exchanges, together with the China Securities Regulatory Commission (CSRC), could analyse and report on the disclosures being provided by listed companies. |
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HONG KONG SAR, CHINA
EXPLORE NATIONAL REGULATORY CLARIFICATION. The Hong Kong government could investigate clarifying the Securities and Futures Ordinance and the Mandatory Provident Fund Schemes Ordinance to ensure collective investment schemes and MPF schemes take account of ESG issues, encourage high standards in investee companies and report on how they are doing so. EXPAND GREEN FINANCE. The government could develop comprehensive policies to support green finance, including implementing the recommendations made in the Financial Services Development Council’s Green Finance Working Group report. ENSURE THE EFFECTIVE IMPLEMENTATION OF THE PRINCIPLES OF RESPONSIBLE OWNERSHIP. The Securities and Futures Commission could work with the investment industry to ensure the effective implementation of the Principles of Responsible Ownership. |
ENHANCE CORPORATE DISCLOSURE. The Hong Kong Stock Exchange and the Securities and Futures Commission could analyse and report on the disclosures being provided by listed companies and could work together to improve the quality of these disclosures. SUPPORT RESEARCH. The Securities and Futures Commission, the Mandatory Provident Fund Schemes Authority, the Hong Kong Stock Exchange and the investment industry could work together to support high-quality academic research into ESG issues. |
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INDIA
EXPLORE NATIONAL REGULATORY CLARIFICATION. The Indian government could investigate clarifying the Pension Fund Regulatory and Development Authority Act 2013 to encourage investors to take account of ESG issues, promote high standards in investee companies and report on how they are doing so. BOOST DOMESTIC DEMAND. The National Pension System Trust could require all pension fund managers charged with managing National Pension System funds to take account of ESG issues, encourage high standards in investee companies and report on how they are doing so. INTRODUCE A STEWARDSHIP CODE AND MONITOR STEWARDSHIP OUTCOMES. The Securities and Exchange Board of India (SEBI) and the Pension Fund Regulatory and Development Authority (PFRDA) could jointly develop a code setting out institutional investors’ stewardship responsibilities. |
ENHANCE CORPORATE DISCLOSURE. SEBI could improve its oversight of the disclosures being provided by the top-500 listed companies against the nine pillars of India’s National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business. Stock exchanges should engage investors and listed companies to enhance the quality of corporate disclosure and expand the reporting scope beyond regulatory requirements. SUPPORT RESEARCH. Policy makers, national academic institutions and the investment industry could work together to support high-quality academic research into ESG issues. |
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MALAYSIA
EXPLORE NATIONAL REGULATORY CLARIFICATION. The Malaysian government could investigate clarifying each of the Employees Provident Fund Act 1991, the Retirement fund Act 2007, the Financial Services Act 2013, the Islamic Financial Service Act 2013 and the Capital Markets and Services Act 2007 to have all pension funds and investment managers take account of ESG issues, encourage high standards in investee companies and report on how they are doing so. ENSURE THE EFFECTIVE IMPLEMENTATION OF THE MALAYSIAN CODE FOR INSTITUTIONAL INVESTORS. The Financial Services Authority could work with the investment industry to ensure the effective implementation of the Malaysian Code for Institutional Investors. |
ENHANCE CORPORATE DISCLOSURE. Bursa Malaysia and the Securities Commission of Malaysia could analyse and report on the disclosures being provided by listed companies and could work together to improve the quality of these disclosures. SUPPORT RESEARCH. The Securities Commission of Malaysia, Bursa Malaysia and the investment industry could work together to support high-quality academic research into ESG issues. |
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SINGAPORE
INCREASE SOVEREIGN FUNDS’ ESG FOCUS. Lead by example through the actions of Temasek and GIC on ESG integration. EXPLORE NATIONAL REGULATORY CLARIFICATION. The government could investigate amending the Securities and Futures Regulations (Licensing and Conduct of Business) to require all investment managers and relevant intermediaries to take account of ESG issues, encourage high standards in investee companies and report on how they are doing so. INTRODUCE A STEWARDSHIP CODE AND MONITOR STEWARDSHIP OUTCOMES. The Monetary Authority of Singapore could continue to work with the investment industry to introduce a code setting out institutional investors’ stewardship responsibilities and to monitor stewardship outcomes. |
ENHANCE CORPORATE DISCLOSURE. The Singapore Stock Exchange (SGX) should continue its plans to have all listed companies produce sustainability reports. SUPPORT RESEARCH. The government and the investment industry could work together to support high-quality academic research into ESG issues. |
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SOUTH KOREA
EXPLORE NATIONAL REGULATORY CLARIFICATION. The government could investigate amending the National Finance Law, the enabling legislation for each of the state pension funds, and the Financial Investment Services and Capital Markets Act (FISCMA) to have public and private pension funds and investment managers take account of ESG issues. DEVELOP A STEWARDSHIP CODE. The Financial Services Commission could work with the investment industry to develop a code setting out institutional investors’ stewardship responsibilities. |
ENHANCE CORPORATE DISCLOSURE. The Financial Services Commission and the Korea Exchange could work together to extend the Green Posting System requirements to cover the range of ESG issues that are of relevance to companies. SUPPORT RESEARCH. The government and the investment industry (through industry bodies such as the Korea Sustainability Investing Forum) could work together to support high-quality academic research into ESG issues. |
INVESTORS (across all six markets)
In addition to the actions proposed to policy makers, investors across the six markets should: build their knowledge of the investment case for integrating ESG factors; encourage ESG disclosure and high standards of ESG performance in the companies or other entities in which they are invested; select, appoint and monitor investment managers and service providers (such as brokers, investment consultants and data providers) based on the quality of ESG integration in business models and should publicly commit to responsible investment in order to provide policy makers with the confidence to act.
In addition to the actions proposed to policy makers, investors across the six markets should: build their knowledge of the investment case for integrating ESG factors; encourage ESG disclosure and high standards of ESG performance in the companies or other entities in which they are invested; select, appoint and monitor investment managers and service providers (such as brokers, investment consultants and data providers) based on the quality of ESG integration in business models and should publicly commit to responsible investment in order to provide policy makers with the confidence to act.
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