Asia’s Investors Making Progress on Climate Targets, Yet Challenges Remain in Aligning With 1.5°C Climate Goals

The Asia Investor Group on Climate Change (AIGCC) has published the comprehensive State of Net Zero Investment in Asia, drawing on data from more than 200 mainstream asset owners and managers with more than US$76 trillion assets under management. All are active in Asia, and 186 are headquartered in the region.

The report identifies five priority areas for Asian investors to protect beneficiaries from climate risks: physical damage and disruption, fossil fuel approaches, deforestation, climate solutions, and climate transition planning.

Physical Risks

Physical damage and disruption from climate change are enormous systemic risks but only a small portion of investors have disclosed actions to drive adaptation and resilience across their portfolios. Of the 200+ Asia investors, 15 per cent disclosed a detailed physical climate risk assessment (over part or all of their portfolios), with an additional 16 per cent having undertaken some preliminary or high-level physical risk disclosures.

The Asia-Pacific is the world’s most disaster-prone region, with 80 disasters linked to climate costing USD36 billion in 2022. This poses significant and, without adaptation, persistent financial risks to investors as well as massive costs to societies, economies and governments in the region.

Fossil Fuel Approaches

Asia is still largely reliant on fossil fuels to meet energy needs. Investor engagement and collaboration with policymakers on policies to quickly transition to renewable energy is key to achieving climate goals. There has been increased participation from a small subset of investors through AIGCC’s policy roundtables and direct engagements.

However, AIGCC’s report found that, overall, few investors in Asia have established a strategies or policies regarding fossil fuels phase-down or transition finance: Of the 200+ investors, 24 per cent of asset managers and 19 per cent of asset owners have investment policies on fossil fuels.

Deforestation

Progress on deforestation across the investment community remains relatively nascent, however, leading investors are considering deforestation in their strategies and policies through risk assessments and disclosures, company engagements, and investment decisions.

AIGCC’s report found that 19 per cent of asset managers and 3 per cent of asset owners have incorporated deforestation into investment approaches.

Investments in Climate Solutions

Asia needs US$71 trillion in investments to achieve net zero carbon emissions by 2050. There is strong interest from investors to allocate capital to low-carbon companies and clean energy solutions under the right policy conditions.

However, the vast majority of investors have not positioned themselves to capture opportunities in the net zero transition. AIGCC’s report found that only 12 per cent of investors have committed to increasing investments in climate solutions. Likewise, few investors have formalised climate solutions strategies, targets and metrics.

Investor Climate Transition Planning

Investor net zero transition plans are integral to enable the net zero transition of the financial sector. AIGCC’s report found that 33 per cent of asset managers and 20 per cent of asset owners have some form of climate action plan, albeit with varying levels of detail and robustness.

These transition plans could be central to investors’ performance over the long term. With a top-down strategy, leading investors demonstrate how they are addressing systemic climate risks, aligned with their fiduciary duty.

Overall, AIGCC’s report shows that investors have momentum in setting climate strategies and short-term targets, however much more critical action is needed to accelerate the net zero transition. The report also identifies the actions that leading investors have taken to reach the climate objectives that are in beneficiaries’ interests.

AIGCC CEO, Rebecca Mikula-Wright, said: “Institutional investors know that climate risks and opportunities are financial risks and opportunities. Asset owners, as stewards of capital, hold the power to accelerate the energy transition. Now is the time for them to act and lead by example in their respective markets and transition, not only their portfolios but whole economies, to net zero.”

AIA Group Director, Investment Environmental, Social & Governance, Group Investment, Duncan Lee added: “Holders of over 42 million policies look to us to responsibly manage their assets in the long-term. The insights from this report highlight the areas where we must all step up our efforts in order to make meaningful progress to net zero, and it is our responsibility to do so.”