Investment stewardship in Asia ex-Japan: the themes and channels we're targeting

Having explored the specific Asia-ex Japan context for stewardship in our previous blog, in this instalment we share some of our plans for thematic areas of focus and key stakeholders to target for engagement.

LGIM’s Investment Stewardship team has been engaging with companies in the region for many years to address systemic issues, material risks and opportunities. In 2022, around 21% of our global engagement activities were in Asia ex-Japan.¹ The top three engagement themes were climate change, deforestation, and company disclosure and transparency.

Our global stewardship themes – climate, nature, people, health, governance and digitisation – reflect systemic and financially material issues affecting the global markets and companies in which our clients are invested, and where we believe we can have an impact through engagement. Taking our understanding of the Asia ex-Japan context into consideration, we plan to focus initially on the following areas:

• Climate: climate impact mitigation, climate adaptation and the ‘just transition’. 70% of energy in the region is currently generated by fossil fuels,² and Asian countries are repeatedly identified as the most vulnerable to climate risks³ with 70% of the global population susceptible to sea level rises located here
• Nature: deforestation is a critical threat to South East Asia, home to nearly 15% of the world’s tropical forests.⁴ South Asia is considered one of the most water-stressed regions, and China and India are ranked as the top two countries where water stress could significantly disrupt economies⁵
• People: diversity, human capital, human rights: Asia ex-Japan is home to nearly 60% of the global population.⁶ There are more than 2,000 languages spoken in Asia.⁷ India alone has 22 official languages⁸
• Governance: company disclosure and transparency are fundamental in shining a light on and addressing systemic issues

To have real impact, we undertake targeted engagements with market participants across these key themes.

Direct company engagement

We engage with leading companies and companies that are willing to have candid exchanges related to LGIM’s expectations of change. Given the breadth of our company ownership, we plan to focus our direct engagement efforts on select market leaders and ‘dial-mover’ companies we believe to be influential in their markets and sectors and where we believe we can drive long-term change.

Engagement with stock exchanges

Seeking to engage with regulators in the region that can drive change from many angles, including, for example, listing rules and disclosure requirements. As noted in our previous blog, major stock exchanges in Asia ex-Japan have been progressively strengthening ESG disclosure requirements.

Engaging across the value chain

Asia ex-Japan is pivotal in the global supply chain. We target a number of value chains that are both exposed and contribute to global systemic problems, e.g. climate change, the energy transition, the circular economy. By targeting our engagement appropriately across ‘dial movers’ and key sectors, we can aim for the changes we seek to cascade across the value chain.

Collaboration with peers, partners and broader stakeholders

We continue to expand our participations in collaborative engagements in the region corresponding to our prioritised themes.

In these two blogs we’ve provided a brief overview of our broad approach to investment stewardship in the Asia ex-Japan region. We’ve explained the role of both the carrot and the stick in our approach, and the engagement channels we think have the greatest potential to galvanise positive change.

But beyond outlining our approach, we hope these blogs will encourage companies based in the region to learn more about us – or better still to start a conversation with us.

The doors of our Singapore office are open, and we look forward to meeting you!

Sources:

1. https://www.lgim.com/landg-assets/lgim/_document-library/capabilities/active-ownership/active-ownership-report-2022.pdf

2. https://www.spglobal.com/_assets/documents/ratings/research/101574780.pdf

3. https://www.ipcc.ch/report/ar6/wg2/chapter/chapter-10/

4. https://earth.org/deforestation-in-southeast-asia/#:~:text=Southeast%20Asia%2C%20including%20Indonesia%2C%20Malaysia,attractive%20as%20a%20deforestation%20hotspot.

5. https://www.wri.org/insights/highest-water-stressed-countries

6. https://en.wikipedia.org/wiki/Demographics_of_Asia

7. Asian Languages (tomedes.com)

8. PAGE 0 (education.gov.in)