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[KH Finance Forum] Asia rises to new destination for ESG investing

David Smith, senior investment director for Asian equities at abrdn (abrdn)
David Smith, senior investment director for Asian equities at abrdn (abrdn)
Asia is projected to emerge as a destination for sustainability-driven investment, and integrating environmental, social and governance factors is key to discovering the less well-tapped investment opportunities in the region, a veteran investor said Tuesday.

Spurred by rising secondary battery demand, combined with a projection of fast-paced electric vehicle adoption, Asian countries including South Korea are in a race to make good on their bid to achieve carbon neutrality and cultivate new energy sources.

“One of the big trends that we have seen in Asia is a big commitment to net-zero or carbon neutrality,” David Smith, senior investment director of Asian equities at abrdn, said during the Korea Herald Finance and Investment Forum held at Four Seasons Hotel Seoul.

Smith leads ESG research and integration across Asia at Edinburgh-based abrdn, formerly known as Aberdeen Standard Investments, which was overseeing 532 billion pounds ($728.8 billion) in assets across the world as of June.

“China leads the world in terms of renewable energy storage. So within this region, we can find an opportunity not just investing in energy transition, but also in global leaders that will benefit from the energy transition globally through the export of technologies,” said the investment professional based in Singapore.

The region is not only brimming with companies dedicated to cultivating new and renewable energy sources, but also pushing to build a supply chain for fossil fuel phase-out.

The supply chain comprises companies with solar and wind energy technology, as well as component manufacturers for them, infrastructure firms that solve the issue of curtailment for smart grid optimization, and energy storage companies to solve intermittency in power generation using the unpredictable source of solar and wind.

Moreover, the cost of new and renewable energy power generation has been on the decline in Asia over the past decade, to a point where he was “seeing a cost comparison, or cost parity between renewable energy and fossil fuels.”

This is where the vast investment opportunities lie, Smith said, by going “quite deep into the technological prerequisites for these industries to achieve.”

“What we’ve tried to do as a firm, as an equities team, is to go a lot deeper than just buying a (single company’s share) and saying we are investing in energy transition,” Smith said.

“We’ve looked at a broad range of infrastructure that’s required, a precondition that’s required, to allow for the successful penetration of a sustainable energy as a part of the energy mix.”

The expert said abrdn’s established investment “road map” -- from sector review to idea generation, research, portfolio construction and engagement -- has allowed the asset manager to explore trends and opportunities in terms of ESG.

The process is crucial to identifying a long-term value chain to invest in and determining top ESG performers in terms of industries in subsectors including energy generation, utilities, transmission and storage, according to Smith.

“We consider that ESG is financially material. This is not just ethics, this is not values, this is not one thing to do for the sake of doing good,” he said. “This is the way (that) we think minimizes risks to our investment. but also looking for interesting alpha opportunities.”

Since joining abrdn in 2011, Smith has spearheaded the asset management firm’s public advocacy on ESG issues in Asia, and led engagement with board members of the investee companies.

By Jie Ye-eun (