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Exploring ESG Trends in the APAC Markets

24 April 2019

By Sarah Broderick, Associate Director for iLEVEL at IHS Markit

In recent years, Environmental, Social and Governance (ESG) factors have rapidly moved from the fringes of the investing world to become an important focus for firms and investors - particularly in Europe, and increasingly in Asia-Pacific.

While ESG and responsible investing are undoubtedly relevant from an ethical perspective, there is also a growing body of research that correlates ESG performance with financial performance - providing a major motive for change that is likely to help stimulate ESG data demand in the Asian markets.

Study reveals financial outperformance through ESG alignment in Chinese SMEs

The University of Cambridge recently published a China-based study tracking ESG metrics for employee and board diversity against individual firms' financial performance. The research focused on 122 Chinese high technology small and medium enterprises (SMEs), comparing performance in adverse and favourable conditions.

The report discovered a striking 19.5% increase in profitability in firms with management teams that are highly balanced in terms of gender composition in times of adverse condition. The study also highlighted a 24.8% increase in the return on assets for firms with high gender balance, during times of adverse conditions.

This analysis can be substantially important to private investors when evaluating an investment into an SME, and as a potential value driving lever during an investment hold. Investors can use the continual monitoring of management team pedigree and composition to evaluate performance while aligning with investment objectives over time. Without monitoring such metrics quantitively, this impact may not otherwise be recognised from a risk management or value creation perspective.

As ESG moves mainstream to enhance and confirm investment philosophies of investors, demand grows in private markets for ESG disclosure and continual reporting standards

As individual investors increasingly focus on quantifying ESG metrics and their impact on financial performance, there is growing emphasis within global private markets investment spheres to move towards standardised reporting and disclosure practices.

Learn more about the top 3 ESG trends in private markets in our previous article.

IHS Markit provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.

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