1、Dec 2022The Value of Investing in ValuesThe ESG opportunity for APAC asset managers2 2022 KPMG Advisory(Hong Kong)Limited,a Hong Kong(SAR)limited liability company and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private Engli

2、sh company limited by guarantee.All rights reserved.2022 Quinlan&Associates Limited,a company incorporated in Hong Kong.All rights reserved.FOREWORDBenjamin QuinlanCEO&Managing PartnerQuinlan&AssociatesIt is nearly impossible to read the news or scroll through social media feeds these days without s

3、eeing something on the topic of ESG.And sittingat the epicentre of the global ESG agenda are asset managers,who play a pivotal role with respect to regulatory advocacy,capital allocation decisions,and delivering on evolving public expectations.While ESG adoption in Asia Pacific lags that of Europe b

4、y a considerable margin,a growing number of Asian regulators are localising ESG-related requirements in their home markets in short,ESG is no longer a“nice to have”.It is a“must”.In addition,regional managers are becoming increasingly aware of the consequences of non-compliance(including the risk of

5、 reputational damage and capital outflows),as well as the benefits of getting ESG right(including potential valuation uplifts,the ability to charge higher management fees and enhanced access to offshore capital).Despite the benefits that ESG integration can bring to regional managers,the ESG transfo

6、rmation journey is fraught with challenges,especially given the heterogenous nature of Asia Pacific including fragmented rules,products,data,and cultures.As such,a robust ESG strategy and operating model is needed for regional managers who are looking to capitalise on the ESG opportunity beyond mere

7、“box ticking”.KPMG and Quinlan&Associates have co-authored this paper to provide regional asset managers with a fresh perspective on how to make ESG work for you;not just in terms of ensuring compliance with evolving regulatory norms in the region,but in delivering real economic value to your organi

8、sation.Chee HoongTongPartner,Asset Management,Hong Kong SAR,KPMG ChinaDr.Christoph ZinkePartner,KPMG China Head of Global Strategy Group,ASPACWei LinHead of Environmental,Social and Governance,KPMG China3 2022 KPMG Advisory(Hong Kong)Limited,a Hong Kong(SAR)limited liability company and a member fir

9、m of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.2022 Quinlan&Associates Limited,a company incorporated in Hong Kong.All rights reserved.EXECUTIVE SUMMARY(1/2)THE STATUS QUO Ass

10、et managers sit at the heart of the global ESG ecosystem,playing a pivotal role with respect to regulatory advocacy,capital allocation decisions,and meeting rapidly evolving public expectations regarding sustainable business practices Asia Pacific(APAC)lags significantly behind global standards when

11、 it comes to implementing sustainable practices across key environmental,social,and governance pillarsAPAC ASSET MANAGERS AT RISK Leveraging frameworks established by inter-governmental organisations(IGOs),a growing number of APAC regulators are actively establishing ESG-related regulations in their

12、 home markets In addition,end-investors in APAC,including pension funds,sovereign wealth funds,and high net worth individuals(HNWIs),are increasingly taking ESG considerations into account when selecting their asset managers As such,we believe non-adherence to rapidly evolving ESG standards will lea

13、ve regional asset managers open to sizeable reputational risks,and create challenges with respect to capital raising,especially from offshore investors Given growing regulatory and investor pressure,we expect stronger allocations by regional managers to ESG-friendly assets in the coming years,offeri

14、ng a USD 1.8 billion revenue opportunity by 2025 Despite the significant potential of ESG investing,most asset managers in the APAC region lag considerably behind their global competitors when it comes to integrating ESG considerations into their operational/investment processes,putting them at risk

15、 of losing market share to international managers who are currently operating in the region While most APAC managers can be considered“Starters”or“Fast Followers”in the ESG space,we see considerable potential for firms with a willingness to evolve to become true“Market Leaders”,attracting significan

16、t ESG-related inflows4 2022 KPMG Advisory(Hong Kong)Limited,a Hong Kong(SAR)limited liability company and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.2022 Quinl

17、an&Associates Limited,a company incorporated in Hong Kong.All rights reserved.EXECUTIVE SUMMARY(2/2)THE ESG TRANSFORMATION JOURNEY Asset managers need to evaluate a holistic range of strategic and operational considerations when embarking on their ESG transformation journey Stakeholder Review:as a f

18、irst priority,managers should comprehend the different ESG needs and levels-of-influence of their key stakeholder groups,following which they can develop a fit-for-purpose ESG proposition Proposition Development:managers should apply qualitative and/or data-driven quantitative screening methodologie

19、s,with a view to developing ESG funds that:(1)increase transparency;(2)prevent greenwashing;(3)redirect capital correctly;and(4)appeal to key target client segments Stakeholder Engagement:managers may either outsource their shareholder activism activity to specialists orlook to build their own inter

20、nal expertise,which can serve as a source of competitive advantage Reporting:in line with international standards and/or frameworks,managers should not only disclose their financial performance,but also their product-level ESG investment themes,strategies,stewardship approaches,and ESG-specific metr

21、ics at the fund and enterprise-level Data:data solutions for ESG-related analytics and applications should be adopted across:(1)sales and marketing;(2)investment;and(3)investee engagement Corporate Structure:a fit-for-purpose corporate structure should be established to mitigate risks and separate o

22、perational processes,via“green”or“brown”spin-offs or hybrid models Governance:a decentralised governance structure should be crafted,with responsibilities distributed across the asset management firm Talent&Incentives:managers should identify gaps and develop appropriate talent acquisition,developme

23、nt,compensation,and retention plans Measurement System:while embarking on this transformation journey,a measurement system can help benchmark asset managers progress against industry best practices/market-leading peers,allowing improved identification of what is still left to be achieved Change Mana

24、gement:the concept of ESG as a whole should be well-integrated across the organisation and embedded into its DNA,both in terms of its culture and operations5 2022 KPMG Advisory(Hong Kong)Limited,a Hong Kong(SAR)limited liability company and a member firm of the KPMG global organisation of independen

25、t member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.2022 Quinlan&Associates Limited,a company incorporated in Hong Kong.All rights reserved.TABLE OF CONTENTSSECTION 1CASE FOR CHANGE6SECTION 2WHERE TO PLAY&HOW TO WIN162.1.Stakeh

26、older Review192.2.Vision&Ambition252.3.Proposition Development282.4.Investment Process332.6.Stakeholder Communication392.5.Stewardship Process362.7.Corporate Structure432.8.Data&Technology462.9.Governance Structure492.10.Talent&Incentives522.11.Measurement System552.12.Change Management57SECTION 3FI

27、NAL REMARKS60REFERENCES&CONTACT US64SECTION 4HOW WE CAN HELP62CASE FOR CHANGE01CASE FOR CHANGE7 2022 KPMG Advisory(Hong Kong)Limited,a Hong Kong(SAR)limited liability company and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a pr

28、ivate English company limited by guarantee.All rights reserved.2022 Quinlan&Associates Limited,a company incorporated in Hong Kong.All rights reserved.WHERE TO PLAY&HOW TO WINFINAL REMARKSHOW WE CAN HELPASIA PACIFIC ESG SNAPSHOTAsia Pacific lags significantly behind global standards with respect to

29、the adoption of sustainable practices across key environmental,social,and governance factorsSource:Swiss Re Institute,Visual Capitalist,KPMG/Quinlan&Associates analysisNotes:1.Degree of enforcement is based on the proportion of jurisdictions that is enforcing net-zero targets through the adoption of

30、 policy or law,2.The Human Rights Index measures the extent of the availability of human rights(e.g.peoples freedoms of movement,property rights,religious expression etc.)Variables range from 0 to 1(most human rights).Degree of Net-Zero Enforcement1LowLevel of Natural Hazard RiskHighModerateLowModer

31、ateHigh0.00.20.40.60.81.0Middle EastAsia PacificLatin AmericaEuropeNorth America0%10%20%30%40%Middle EastLatin AmericaAsia PacificNorth AmericaEuropeENVIRONMENTAL(Level of Natural Hazard Risk vs.Degree of Net-Zero Enforcement)SOCIAL(Human Rights Index2)GOVERNANCE(%Women on Boards)NAEUMEAPACLATAMNot

32、Taking Action:Despite being considerably exposed to natural hazard risk,Asia Pacific is far behind net-zero enforcement to cope with future sustainability at riskSource:One World in DataSource:UNGCCASE FOR CHANGE8 2022 KPMG Advisory(Hong Kong)Limited,a Hong Kong(SAR)limited liability company and a m

33、ember firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.2022 Quinlan&Associates Limited,a company incorporated in Hong Kong.All rights reserved.WHERE TO PLAY&HOW TO WINFINAL R

34、EMARKSHOW WE CAN HELPGlobal regulators set ESG mission,objectives,and guidelines,while regional and local authorities establish and execute regulationsKey asset owners(i.e.institutional investors)inject capital into ESG-compliant industries/companies directly or via professional asset managersAsset

35、managers make ESG investment decisions based on the expectations of regulators,investors,employees,and the general public Industries/companies within the capital market ecosystem integrate ESG considerations into their business and operating modelsEmployees,as well as the general public,expect asset

36、 managers to integrate ESG factors in their investment process to drive positive impactsTHE IMPORTANCE OF ASSET MANAGERSAsset managers sit at the epicentre of the ESG ecosystem,playing a pivotal role in regulatory advocacy,capital allocation decisions,and delivering on evolving public expectationsSo

37、urce:KPMG/Quinlan&Associates analysisGeneral Public(Retail Investors&Employees)Asset Managers(Public and Private Funds)Issuers/Investees(Public and Private Institutions)Asset Owners(Institutional Investors)Market Regulators(Supranational,Regional,and Local)Regulatory PressureCapital PressureReputati

38、onal PressureCASE FOR CHANGE9 2022 KPMG Advisory(Hong Kong)Limited,a Hong Kong(SAR)limited liability company and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.202

39、2 Quinlan&Associates Limited,a company incorporated in Hong Kong.All rights reserved.WHERE TO PLAY&HOW TO WINFINAL REMARKSHOW WE CAN HELPREGULATORY PRESSURERegulators in Asia are actively establishing and executing ESG-related regulations by leveraging frameworks and guidance set forth by inter-gove

40、rnmental organisationsSource:KPMG/Quinlan&Associates analysisNote:1-14.Please refer to REFERENCES for more details.20022Singapore(MAS)Implemented the Green Finance Action Plan(GFAP)1Issued Guidelines on Environmental Risk Management and the Green and Sustainability-Linked Loan Grant Schem

41、e(GSLS)for sustainability-linked loans2Published its first Sustainability Report3and set up a Sustainability Group to coordinate MASs green finance and sustainability agenda4Co-led the supervision workstream,which has published the Principles for the Effective Management and Supervision of Climate-r

42、elated Financial Risks1Chinese Mainland(PBOC,CBIRC,NDRC,CSRC)Issued guidelines on high-quality development of banking and insurance industry,to strengthen ESG information disclosure5Issued a pilot guideline to financial institutions in 2020 on environmental information disclosure6Jointly announced l

43、aunch of China Green Bond Catalog and updated it subsequently to govern Chinese green bond market and consolidate it for the investors7Issued Guidelines for Green Finance in the Banking and Insurance Industry,requiring banking and insurance institutions to promote green finance8Hong Kong SAR(SFC)Iss

44、ued first circular in 2019 setting out the SFCs expectations on disclosures regarding ESG funds9Initiated the establishment of the Cross-Agency Steering Group(CASG)in May 20209 to accelerate the growth of green financeAmended its Fund Manager Code of Conduct(FMCC)to require fund managers to take cli

45、mate-related risks into consideration,to make appropriate disclosures,and to combat greenwashing10Maintained a central database of all SFC-authorised ESG funds and included the key features of these funds to enhance their transparency10Japan(FSA)Appointed first Chief Sustainable Finance Officer to p

46、lan and coordinate the promotion of sustainable finance internally and globally11Revised the latest version of Japans Stewardship Code to call for institutional investors to consider medium-to long-term sustainability,including ESG factors,in their investment strategies12Included climate disclosures

47、 into Japans corporate governance code on a“comply-or-explain”basis in the Guidelines for Investor and Company Engagement13Implemented the ESG-related disclosure requirements for companies listed in prime markets in accordance with the Climate-related Financial Disclosures(TCFD)framework14CASE FOR C

48、HANGE10 2022 KPMG Advisory(Hong Kong)Limited,a Hong Kong(SAR)limited liability company and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.2022 Quinlan&Associates L

49、imited,a company incorporated in Hong Kong.All rights reserved.WHERE TO PLAY&HOW TO WINFINAL REMARKSHOW WE CAN HELPREPUTATIONAL PRESSURENon-compliance with ESG standards and/or the opportunistic adoption of ESG practices can expose asset managers to considerable reputational damageSource:Yahoo Finan

50、ceNote:1.Please refer to REFERENCES for more details.0.50.60.70.80.911.11.220212022August 2021 U.S.Securities and Exchange Commission began investigating the asset manager over its sustainable investing practices1Sep-Dec 2021The asset managers supervisory board creates a subcommittee to deal with th

51、e allegations1May 2022 Prosecutors,along with police and other officials,raid the asset manager,following up on news reports and the whistleblowers claims1-15.8%Cost of GreenwashingStock Price of a Major European Asset Manager vs.SDAX Index,July 2021-October 2022Job Selection PrioritiesAsia Talent M

52、arket98%92%of younger-generation talent in Asia agreed that ESG aligns with their values to lifeof talent in Asia expects their position in a company to have a positive impact in the worldSDAX IndexAsset ManagerSource:HR Magazine-6.23%CASE FOR CHANGE11 2022 KPMG Advisory(Hong Kong)Limited,a Hong Kon

53、g(SAR)limited liability company and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.2022 Quinlan&Associates Limited,a company incorporated in Hong Kong.All rights r

54、eserved.WHERE TO PLAY&HOW TO WINFINAL REMARKSHOW WE CAN HELPInvestors Selection Criteria for Asset Managers2019 vs.2021,%of RespondentsESG Expectation EnforcementAsset Owners,Case StudiesCAPITAL PRESSURE(1/2)ASSET MANAGER SELECTIONAsset-owners in Asia Pacific have already started to include ESG cons

55、iderations when selecting their asset managersSource:BNP Paribas,KPMG/Quinlan&Associates analysis32%46%27%29%31%42%47%53%0%10%20%30%40%50%Competitive FeesProven Track RecordESG Value AlignmentESG Reporting Ability20212019HighlightGovernment Pension Fund in JapanSigned the UN PRI,published own ESG in

56、vestment principlesRevised manager evaluation criteria,with significantly higher scores for good ESG-related activitiesRequires all EAMs in Japan to consider ESG as a fundamental measure of investmentHNWIs in Hong Kong SARGrowing investment priorities in sustainable investment(ESG)amidst macroeconom

57、ic uncertaintyIn 2020,only 8%of HNWIs stated that sustainable investment(ESG)was core to their investment focus.1By 2022,this number had tripled to 25%2Sovereign Wealth Fund in SingaporeEstablished a dedicated ESG function as a centre of knowledge for ESG research,data,and expertiseProvides regular

58、ESG training to investment teams,raising awareness of key sustainability themes Continues to monitor ESG trends and review ESG statementsSource:KPMG/Quinlan&Associates analysisNote:1-2.Please refer to REFERENCES for more details.CASE FOR CHANGE12 2022 KPMG Advisory(Hong Kong)Limited,a Hong Kong(SAR)

59、limited liability company and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.2022 Quinlan&Associates Limited,a company incorporated in Hong Kong.All rights reserve

60、d.WHERE TO PLAY&HOW TO WINFINAL REMARKSHOW WE CAN HELPESG Capital FlowVirtuous CycleESG AllocationsAllocation to ESG-Related Assets,USD billion,2017-2022CAPITAL PRESSURE(2/2)LIMITED CAPITAL ACCESSdriving greater allocations to ESG-related assetsSource:KPMG/Quinlan&Associates analysisCapital Flow(+)E

61、SG DriverCapital Flow(-)ESG Compliant IssuersRetail InvestorsAssetOwnersAsset Mangers(Without ESG Offerings)ESG Non-compliant IssuersAsset Mangers(With ESG Offerings)Stakeholder Expectation on ESGGlobalESG AUMAsset ManagersIssuersInvestors&AUMAsset managers with limited ESG adoption/offerings are ex

62、pected to face major difficulties in accessing capital in coming years12.729.648.289.6102.2108.7020406080002120221.0%2.2%5.7%3.8%6.2%6.6%TotalGovernment Pension Fund in JapanAllocating a sizable portion of its investment portfolio to ESG-related assets after its first investmen

63、t in 2017.ESG allocations have risen 9x between 2017 and 2022,growing at a CAGR of 53.6%over the period.CASE FOR CHANGE13 2022 KPMG Advisory(Hong Kong)Limited,a Hong Kong(SAR)limited liability company and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG

64、International Limited,a private English company limited by guarantee.All rights reserved.2022 Quinlan&Associates Limited,a company incorporated in Hong Kong.All rights reserved.WHERE TO PLAY&HOW TO WINFINAL REMARKSHOW WE CAN HELPFAR BEHIND THE CURVEDespite fast-growing stakeholder interest in ESG,As

65、ian asset managers trail far behind their Western rivals with respect to integrating ESG factors into their operational and investment practicesSource:UN PRI,KPMG/Quinlan&Associates analysisNotes:1.The United Nations Principle for Responsible Investing,2.Resilient and Sustainable Portfolios that Pro

66、tect Nature and Drive Decarbonisation(RESPOND)is a framework developed by WWF that assesses ESG-related disclosures made by asset managers,3.Open-ended funds only.4386187391,8432,4242,77905001,0001,5002,0002,5003,00020202021Q3 20224x0%20%40%60%80%100%PeoplePortfolioPoliciesProductsProcessesPurpose05

67、001,0001,5002,0002020202120202021Sustainable Funds AUM3Europe vs.APAC,2020-2021,USD billion,%of AUMNumber of UN PRI1SignatoriesEurope vs.APAC,2020-2022RESPOND2Framework ESG ScoresEurope vs.APAC,202219xESG COMMITMENTESG DISCLOSUREESG INVESTMENTAPACEurope4.5%8.3%1.0%0.5%Source:WWFSource:Morningstar,KP

68、MG/Quinlan&Associates analysisCASE FOR CHANGE14 2022 KPMG Advisory(Hong Kong)Limited,a Hong Kong(SAR)limited liability company and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All r

69、ights reserved.2022 Quinlan&Associates Limited,a company incorporated in Hong Kong.All rights reserved.WHERE TO PLAY&HOW TO WINFINAL REMARKSHOW WE CAN HELPOPPORTUNITIES AHEAD(1/2)With significant net inflows into ESG-related investments,coupled with more attractive margins on thematic fund products.

70、Source:IMF,KPMG/Quinlan&Associates analysisNotes:1.Products are mentioned for illustrative purposes only and do not represent KPMG/Quinlan&Associates recommendations.2-4.Please refer to REFERENCES for more details.Average FeeThematic vs.Non-Thematic Fund ProductsAllPassiveActiveAll-AssetWeightedPass

71、ive-AssetWeightedActive AssetWeightedThematicNon-ThematicENVIRONMENTJPMorgan Climate Change Solutions ETF1Seeks to achieve long-term capital appreciation by investing in companies that the adviser believes are developing solutions to address climate change.2SOCIALImpact Shares Affordable Housing MBS

72、 ETF1Aims to invest at least 80%of its net assets in mortgage-backed securities backed by pools of mortgage loans that the funds Sub-Adviser believes were made to minority families,low-income families,and/or families that live in persistent poverty areas.3GOVERNANCESPDR SSGA Gender Diversity Index E

73、TF1Seeks to provide exposure to US companies that demonstrate greater gender diversity within senior leadership than other firms in their sector.4Net Flows into Thematic Funds2016-2020,%of AUM-5%0%5%10%15%20%25%Environment(excl.Climate)ThemeClimate ThemeSustainability(excl.Environment)ThemeConventio

74、nal2020201720182019Theme-based investment products,particularly those related to the climate,successfully attracted more capital than conventional fund products1%1.5%0.5%Source:Morningstar,KPMG/Quinlan&Associates analysisCASE FOR CHANGE15 2022 KPMG Advisory(Hong Kong)Limited,a Hong Kong(SAR)limited

75、liability company and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.2022 Quinlan&Associates Limited,a company incorporated in Hong Kong.All rights reserved.WHERE

76、TO PLAY&HOW TO WINFINAL REMARKSHOW WE CAN HELPOPPORTUNITIES AHEAD(2/2).ESG-friendly asset managers in APAC will be able to tap into USD 1.82 billion in revenues by 2025,while potentially benefitting from more favourable valuationsSource:Morningstar,KPMG/Quinlan&Associates analysisRevenue PotentialSu

77、stainable Fund Revenues in APAC,2021-2025F,USD billion202242025Total AUM(USD billion)5250Avg.Mgmt.Fee(%)0.89%0.84%0.80%0.76%0.73%Total Fees(USD billion)0.910.861.101.421.820.910.861.101.421.820.00.40.81.21.62.020212022F2023F2024F2025FCAGR:19%Active Fund FeesPassive Fund Fees010

78、203000708090100P/E MultipleS&P Capital IQ ScoreThere is evidence of a positive correlation between a publicly listed asset managers ESG integration level and its P/E multiple,indicating ESG can deliver a“valuation premium”to managersValuation PotentialP/E multiple,S&P Capital IQ ESG Score

79、(by Asset Manager)Source:Bloomberg,S&P Capital IQ,KPMG/Quinlan&Associates analysisAsset Manager 1Asset Manager 2Asset Manager 3Asset Manager 5Asset Manager 4WHERE TO PLAY&HOW TO WIN0217 2022 KPMG Advisory(Hong Kong)Limited,a Hong Kong(SAR)limited liability company and a member firm of the KPMG globa

80、l organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.2022 Quinlan&Associates Limited,a company incorporated in Hong Kong.All rights reserved.CASE FOR CHANGEFINAL REMARKSHOW WE CAN HELPWHERE TO PLAY&HO

81、W TO WINPROPOSITION DEVELOPMENTWhat different ranges of ESG products do you wish to structure and market to your target segment?CORPORATESTRUCTUREWhat kind of corporate structure should you set-up to effectively incorporate ESG propositions in a sustainable manner?ESG TRANSFORMATION FRAMEWORKAsset m

82、anagers need to evaluate a holistic range of ESG considerations and respective initiatives when preparing for their ESG transformation journeySource:KPMG/Quinlan&Associates analysisSTAKEHOLDERREVIEWWho are your key stakeholders,what are their ESG preferences and how do you plan to address them?GOVER

83、NANCE STRUCTUREHow do you plan to delegate supervision responsibilities across your organisation with regards to adopting ESG?MEASUREMENT SYSTEMWhat measurements/KPIs should you use to assess your ESG maturity status and track your transformation efforts?DATA&TECHNOLOGYWhat are the different data an

84、d technology solutions you should consider adopting to enable your ESG transformation?TALENT&INCENTIVESWhat are the ESG skills and competencies you should source and develop,and how do you motivate them?VISION&AMBITIONWhat is your ESG vision and ambition and how does this align with your core capabi

85、lities and stakeholder priorities?INVESTMENTPROCESSHow should you seamlessly integrate ESG into existing or new investment processes in a fully compliant manner?STEWARDSHIPPROCESSHow should you engage with portfolio companies to maximise the ESG impact that is expected from both clients and sharehol

86、ders?891011STRATEGIC CONSIDERATAIONS:WHERE TO PLAYOPERATIONAL CONSIDERATIONS:HOW TO WINSTAKEHOLDERCOMMUNICATIONHow should you communicate with internal and external stakeholders on your expected ESG deliverables?CHANGE MANAGEMENTHow do you make these changes across your organisation and make them st

87、ick?12TRANSFORMATION JOURNEY123456718 2022 KPMG Advisory(Hong Kong)Limited,a Hong Kong(SAR)limited liability company and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights rese

88、rved.2022 Quinlan&Associates Limited,a company incorporated in Hong Kong.All rights reserved.CASE FOR CHANGEFINAL REMARKSHOW WE CAN HELPWHERE TO PLAY&HOW TO WINDIFFERENT STARTING POINTSWhile most asset managers in APAC can be considered“Starters”or“Fast Followers”,we see considerable potential for m

89、any firms in the region to become ESG“Market Leaders”Source:KPMG/Quinlan&Associates analysis1Stakeholder Review 2Vision&Ambition 3ESG Product Offerings-4Investment Process-5Stewardship Process-6Stakeholder Communication 7Corporate Structure 8Data&Technology-9Governance 10Talent&Incentives-11Measurem

90、ent System-12Change Management-ESG DemandUnderstand minimum regulatory requirements and the basics of ESGAdopt a packaged solution to meet the minimum requirementsUnderstand peers progress and ESG trendsDesign a comprehensive strategy to respond to stakeholder concerns regarding upcoming regulatory

91、changesIntegrate ESG into all business functionsCollaborate to influence future ESG trendsHelp design full transformation strategies/capture ESG value-creation opportunitiesFAST FOLLOWERSManagerialSTARTERSDefensiveCompliantMARKET LEADERSStrategicImpactful-Limited Capability Full CapabilitySTRATEGICR

92、EADINESSOPERATIONAL READINESSCASE FOR CHANGEWHERE TO PLAY&HOW TO WINFINAL REMARKSHOW WE CAN HELP2.1.STAKEHOLDER REVIEWBack to ESG Transformation Framework 20 2022 KPMG Advisory(Hong Kong)Limited,a Hong Kong(SAR)limited liability company and a member firm of the KPMG global organisation of independen

93、t member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.2022 Quinlan&Associates Limited,a company incorporated in Hong Kong.All rights reserved.CASE FOR CHANGEFINAL REMARKSHOW WE CAN HELPWHERE TO PLAY&HOW TO WINESG PRIORITIESBuildi

94、ng a compelling ESG proposition begins with understanding the different ESG needs and expectations of key stakeholders,including the level of influence each stakeholder has on the asset managers businessSource:KPMG/Quinlan&Associates analysisESG stakeholdersMarket RegulatorsGlobal regulators set ESG

95、 mission,objectives and guidelines,while regional and local authorities establish and execute regulationsIssuers/InvesteesIndustries/companies within the capital market ecosystem integrate ESG considerations into their business models and operating processesAsset OwnersAsset owners(e.g.institutional

96、 investors)inject capital into ESG-compliant industries/companies directly or via professional asset managersGeneral PublicEmployees,as well as the general public,expect asset managers to integrate ESG into their investment process to make positive impactsHighINFLUENCE OF THE STAKEHOLDERHighLowLowES

97、G INTEREST OF THE STAKEHOLDERhave different ESG agendasClimate ChangeImpact on climate change that the portfolio companys production/operational processes may haveResource DepletionConsumption of renewable and non-renewable resources during the portfolio companys production/operational processesWast

98、e&PollutionLevel of waste and pollution(e.g.carbon dioxide emission)from the portfolio companys production/operational processesHuman RightsWhether international human rights standards(e.g.industrial accidents,anti-discrimination)are incorporated across company frameworksWorking ConditionsWorking ti

99、me,remuneration,as well as the physical conditions and mental demands that exist in the workplaceEmployee RelationsThe effort of a company to create and maintain a positive relationship between employers and employeesBribery&CorruptionWhether the risks of bribery and corruption are managed by releva

100、nt anti-bribery policiesBoard Diversity&StructureNumber or percentage of diverse board directors in terms of gender,ethnicity and expertise in the board structure of an asset managerPoliciesWhether polices(e.g.those that regulate tax and procurement regimes)are established and comprehensiveHigh Prio

101、rityModerate PriorityLow PriorityStakeholder(Illustrative)SocialEnvironmentGovernance.that carry different weight for each asset manager21 2022 KPMG Advisory(Hong Kong)Limited,a Hong Kong(SAR)limited liability company and a member firm of the KPMG global organisation of independent member firms affi

102、liated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.2022 Quinlan&Associates Limited,a company incorporated in Hong Kong.All rights reserved.CASE FOR CHANGEFINAL REMARKSHOW WE CAN HELPWHERE TO PLAY&HOW TO WINREGULATORY EXPECTATIONS THE“PUSH”As reg

103、ulators have introduced different ESG-related standards,asset managers in Asia Pacific must understand the regulatory nuances in their key operating markets before formulating their short-to-long-term ESG strategySource:KPMG/Quinlan&Associates analysisNote:1-5.Please refer to REFERENCES for more det

104、ails.ESG-relatedMetricsDescriptionEuropean UnionSustainable Finance Disclosure Regulation1United KingdomSustainabilityDisclosure Requirements2United StatesInvestment Advisers Act;Investment Company Act3SingaporeGuidelines on Environmental Risk Mgmt4Hong Kong SARFund ManagerCode of Conduct5ESG RiskMa

105、nagementThe risk management processes and policies surrounding ESG-specific risks-Environmental risks focused Climate-related risks focusedAdverse ImpactAnalysisPrincipal adverse impacts on sustainability of investment decisions-ESG KPIsand TargetsExpected ESG targets and KPIs,as well as the measure

106、ment of progress Proposed in SFDR Level 2-ESG InvestmentStrategyOverview of the funds ESG investment strategy-ESG PerformanceAssessmentESG metrics and data generated at the entity-level and fund/product level-Environmental risks focused Climate-related risks focused,for certain fund managers onlyAct

107、iveEngagementEngagement with investee companies,including approach and voting results-Environmental risks focused Climate-related risks focused,for certain fund mangers onlyPartially applicable-UnspecifiedFully ApplicableInvestment Disclosure MetricsNotable Regulatory Requirements,by Market22 2022 K

108、PMG Advisory(Hong Kong)Limited,a Hong Kong(SAR)limited liability company and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.2022 Quinlan&Associates Limited,a compa

109、ny incorporated in Hong Kong.All rights reserved.CASE FOR CHANGEFINAL REMARKSHOW WE CAN HELPWHERE TO PLAY&HOW TO WINCLIENT EXPECTATIONS THE“PULL”Just as critical is the need for asset managers to understand the priorities of both their“current”and“prospective”clients(i.e.asset owners)Source:KPMG/Qui

110、nlan&Associates analysisReturn-Focused Asset OwnersBalancedAsset OwnersImpact-Focused Asset OwnersHighLowReturn-based PrioritiesImpact-based PrioritiesHighLowAssets Under ManagementValue of assets that are managed by the fund,which is an indication of the level of trust that investors haveAbsolute F

111、inancial ReturnInvestment return that is attributable to investors,which indicates the financial performance of the ESG fundRelative Financial ReturnA benchmark measure against similar funds to identify underperformance or outperformance of the ESG fundCarbon Emission RateLevel of carbon dioxide emi

112、ssions from the portfolio companys production/operational processesDiversity and Inclusion RateMeasure of diverse individuals working in a company and degree to which employees feel valued and respectedCompensation GapLevel of differences in pay between two different groups of people(e.g.male/female

113、,with/without disabilities)Incorporation of ESG StandardsLevel of ESG implementation towards daily practices(e.g.paperless client onboarding,hiring diverse employees)Portfolio Company EngagementLevel of engagement with the portfolio company towards improving ESG efforts and/or financial performanceD

114、isclosureExtent of disclosure on material ESG factors and risks to the public,which is a measure of transparencyReturn-basedImpact-basedAsset Owner UniverseBased on Investment Mandate,Across Existing&Prospective Investors23 2022 KPMG Advisory(Hong Kong)Limited,a Hong Kong(SAR)limited liability compa

115、ny and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.2022 Quinlan&Associates Limited,a company incorporated in Hong Kong.All rights reserved.CASE FOR CHANGEFINAL

116、REMARKSHOW WE CAN HELPWHERE TO PLAY&HOW TO WINFinancial MaterialityFinancial+Impact MaterialityImpact MaterialityHNWIsInsurance Companies PensionsSovereign Wealth FundsEndowmentsTalentPublicBoard of DirectorsInvestment team Risk teamEmployeesPRIORITISATION BASED ON DOUBLE MATERIALITYBoth financial a

117、nd impact materiality must be considered when developing and prioritising ESG initiatives to meet different stakeholder expectationsSource:KPMG/Quinlan&Associates analysisAnalyse insights gathered from stakeholders and prioritise the ESG issuesCollect internal and external stakeholder views on which

118、 ESG issues to focus onIdentify ESG issues to be measured per peer review,research ESG megatrends and international ESG frameworks/standards(e.g.SASB)External stakeholdersIt is important to understand stakeholders ESG preferences.Material ESG issues vary by investor objectives,investment style,indus

119、try,and macro conditions.Internal stakeholdersWhen prioritising ESG issues,it is highly recommended to consider ESG issues that are:Material to the market,the environment,and people(impact materiality);andFinancially material in influencing business value(financial materiality).Impact on Environment

120、 and SocietyImpact on EntityIDENTIFICATION OF ESG ISSUESSTAKEHOLDER ENGAGEMENTASSESSMENT&PRIORITISATION24 2022 KPMG Advisory(Hong Kong)Limited,a Hong Kong(SAR)limited liability company and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Li

121、mited,a private English company limited by guarantee.All rights reserved.2022 Quinlan&Associates Limited,a company incorporated in Hong Kong.All rights reserved.CASE FOR CHANGEFINAL REMARKSHOW WE CAN HELPWHERE TO PLAY&HOW TO WINCOST OF EXPECTATION MISALIGNMENTPushing ESG agendas without fully compre

122、hending the priorities of different stakeholders may lead to conflicts that could pose a threat to both current and future fund operationsSource:Refinitiv,KPMG/Quinlan&Associates analysis809000Q1Q2Q3Q4Q1Q2Q3Q4Stock Market PerformanceAll World Sector Indices(rebased),January 202

123、1 November 2022Aerospace&DefenceOil&GasTobaccoRenewablesCost of Expectation MisalignmentCapital Withdrawals20212022Notable non-ESG Indices(e.g.oil&gas,tobacco,and aerospace&defence),significantly outperformed ESG indices(e.g.renewables)over the past 24 months6%7%12%29%49%USD 1.7 billionwas withdrawn

124、 by five US state treasuries from an asset manager because it prioritised ESG over shareholder returnsState 1State 2State 3State 4State 5CASE FOR CHANGEWHERE TO PLAY&HOW TO WINFINAL REMARKSHOW WE CAN HELP2.2.VISION&AMBITIONBack to ESG Transformation Framework 26 2022 KPMG Advisory(Hong Kong)Limited,

125、a Hong Kong(SAR)limited liability company and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.2022 Quinlan&Associates Limited,a company incorporated in Hong Kong.Al

126、l rights reserved.CASE FOR CHANGEFINAL REMARKSHOW WE CAN HELPWHERE TO PLAY&HOW TO WINESG PROPOSITIONAfter understanding and evaluating the needs and expectations of different stakeholders,asset managers should look to develop an ESG proposition that is best aligned to the assessmentSource:KPMG/Quinl

127、an&Associates analysisBest-Practice ComplianceCore Value PropositionModerate ComplianceStrategic PropositionMinimum ComplianceNot ApplicablePurpose of ESG IntegrationRisk ManagementLimitedExpected Alignment with Global StandardsRevenue GenerationFullPartial123451Core Value PropositionESG represents

128、the core DNA of the asset manager from both a compliance and revenue-generating perspective2Strategic PropositionManagers operate with ESG compliance requirements and provide ESG products to address investor demand3Best-Practice ComplianceAsset managers deliver global best-practice ESG compliance,bu

129、t have yet to offer a full suite of ESG products4Moderate ComplianceManagers comply with regional regulatory requirements,but have not yet capitalised on ESG investment opportunities5Minimum ComplianceManagers only comply with minimum requirements and have not yet capitalised on ESG investment oppor

130、tunitiesESG PropositionExpected Alignment with Global Standards vs.Purpose of ESG Integration27 2022 KPMG Advisory(Hong Kong)Limited,a Hong Kong(SAR)limited liability company and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a pr

131、ivate English company limited by guarantee.All rights reserved.2022 Quinlan&Associates Limited,a company incorporated in Hong Kong.All rights reserved.CASE FOR CHANGEFINAL REMARKSHOW WE CAN HELPWHERE TO PLAY&HOW TO WINESG VISION&AMBITION In developing an ESG vision&ambition,asset managers should hav

132、e a deep understanding of the status quo and point of arrival(i.e.risk,opportunity,and internal capability assessment)to determine a suitable ESG propositionSource:KPMG/Quinlan&Associates analysisMeasurable Resultsbased on international standards/initiatives/principlesSpecific to ESG pillarscovering

133、 ESG proposition for both internal and external stakeholdersActionable Initiativesbased on current and planned strategic and operational capabilitiesRealistic Executionwithout going against core needs and demands of key business stakeholdersTimeframeset on tactical initiatives across ESG goals to en

134、sure they are achieved as promisedESG VISION&AMBITIONESG Proposition,Vision&Ambition,and Tactical InitiativesSMART FrameworkDeveloping ESG Vision&AmbitionCASE STUDY:ASSET MANAGER BASED IN EUBuilding on a strong foundation in environmentally and socially responsible investment,the company aims to bec

135、ome a shaper of sustainable investing solutions across public and private markets leading clients and companies on an inclusive transition pathway to a better futureENVIRONMENT VISION&AMBITIONWorking towards sourcing 100%renewable electricity for our operations by 2023Reducing greenhouse gas(GHG)emi

136、ssions by 38%per employee by 2025SOCIAL VISION&AMBITIONListed equity and corporate bonds 25%GHG reduction,Scope 1 and 2,by the end of 2024(baseline:2019)Infrastructure equity 28%GHG reduction,Scope 1 and 2,by the end of 2025(baseline:2020)GOVERNANCE VISION&AMBITIONWomen at group executive committee

137、level targeting 30%by 202527%female representation among senior management by 2025EnvironmentVision&AmbitionSocialVision&AmbitionGovernanceVision&AmbitionEnvironmentTactical InitiativesSocialTactical InitiativesGovernanceTactical InitiativesRisk Mgmt.&Revenue Opp.AssessmentInternal CapabilityAssessm

138、entESG Propositionwill help you determine a fit-for-purposeto develop yourSTATUS QUO REVIEWsupported bysupported bysupported byCASE FOR CHANGEWHERE TO PLAY&HOW TO WINFINAL REMARKSHOW WE CAN HELP2.3.PROPOSITION DEVELOPMENTBack to ESG Transformation Framework 29 2022 KPMG Advisory(Hong Kong)Limited,a

139、Hong Kong(SAR)limited liability company and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.2022 Quinlan&Associates Limited,a company incorporated in Hong Kong.All

140、rights reserved.CASE FOR CHANGEFINAL REMARKSHOW WE CAN HELPWHERE TO PLAY&HOW TO WINESG PROPOSITION TAXONOMY(1/2)KEY QUESTIONSThere are five key questions that asset managers should ask when categorising their ESG-related investment productsSource:KPMG/Quinlan&Associates analysisIs ESG the primary ob

141、jective of the product/mandate?1Is a qualitative screening methodology applied?2Is a quantitative screening methodology applied?3Are ESG factors considered in assessing the risk-adjusted return of the asset?4Is active stewardship exercised?5FUND PROPOSITIONINVESTMENT PROCESSACTIVE STEWARDSHIP5-Key C

142、riteria Differentiating ESG ProductsESG Product Taxonomy30 2022 KPMG Advisory(Hong Kong)Limited,a Hong Kong(SAR)limited liability company and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guar

143、antee.All rights reserved.2022 Quinlan&Associates Limited,a company incorporated in Hong Kong.All rights reserved.CASE FOR CHANGEFINAL REMARKSHOW WE CAN HELPWHERE TO PLAY&HOW TO WINESG PROPOSITION TAXONOMY(2/2)PRODUCT UNIVERSEKPMG and Quinlan&Associates see four broad ESG products that can be differ

144、entiated from traditional investment fund productsSource:KPMG/Quinlan&Associates analysisESG PRODUCTTAXONOMYPrimary Fund Objective(ESG Impact vs.Financial Return)Funds Investment MandateInclusion of ESG objectiveInvestment ProcessAdoption of ESG factors for investment decisionsActive StewardshipExer

145、tion of ESG-specific influence1.Impact FundFund products that fully incorporate expected ESG practices and prioritiseESG impact over financial returnsESG Impact 2.Sustainability FundFund products that fully incorporate expected ESG practices,but prioritise financial return over impactFinancial Retur

146、n 3.ESG Investment FundFund products that help investors get access to a portfolio of companies that are ESG compliantFinancial Return 4.ESG Influence FundFund products that help investors to influence various issuers that are yet to be ESG compliantFinancial Return Traditional FundWidely available

147、fund products that do not incorporate ESG expectations on fund operationsFinancial Return Applicable Inapplicable31 2022 KPMG Advisory(Hong Kong)Limited,a Hong Kong(SAR)limited liability company and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG Intern

148、ational Limited,a private English company limited by guarantee.All rights reserved.2022 Quinlan&Associates Limited,a company incorporated in Hong Kong.All rights reserved.CASE FOR CHANGEFINAL REMARKSHOW WE CAN HELPWHERE TO PLAY&HOW TO WINComponentsDescriptionStrategyExplain the strategy implemented

149、in the investment process on a continuous basisGovernanceState the policy to assess good governance practices at the investee companiesIndicatorsIdentify indicators to measure the environmental or social characteristics that the product promotesBenchmarksState the designated reference benchmark and

150、whether it is aligned with sustainable objectivesSustainabilityDescribe how sustainable investments contribute to the objectives of the productImpactsDisclose how principal adverse impacts are taken into consideration in sustainability factorsEmissionsIndicate whether the product aims to reduce carb

151、on emissionsCriteriaExplain the criteria used to select the investments to attain sustainable investment objectivesAllocationDisclose the planned proportion of asset allocation that is not aligned with sustainable objectives DerivativesExplain how derivatives are used in portfolios to attain sustain

152、able investment objectivesESG PRODUCT COMPONENTSESG fund products should broadly incorporate the following product components to:(1)increase transparency;(2)prevent greenwashing;and(3)redirect capital correctlySource:SFDR,KPMG/Quinlan&Associates analysisOBJECTIVEASSESSMENTINVESTMENTINCREASE TRANSPAR

153、ENCYProduct-level compliance increases the transparency around the sustainability of ESG productsPREVENT GREENWASHINGClear ESG criteria and disclosure requirements can help prevent potential greenwashingREDIRECT CAPITALRegulations help investors understand/compare when redirecting capital to sustain

154、able products12332 2022 KPMG Advisory(Hong Kong)Limited,a Hong Kong(SAR)limited liability company and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.2022 Quinlan&A

155、ssociates Limited,a company incorporated in Hong Kong.All rights reserved.CASE FOR CHANGEFINAL REMARKSHOW WE CAN HELPWHERE TO PLAY&HOW TO WINESG INVESTMENT CYCLEPrior to a new ESG product launch,asset managers should ensure ESG practices are systematically incorporated throughout their investment cy

156、cleSource:KPMG/Quinlan&Associates analysisPRIVATE INVESTMENTPUBLIC INVESTMENTESG megatrend analysis and sector selectionIdentifying/defining material ESG issues that may impact financial valuationsNegative/exclusionary screening(avoiding the worst performers)Norms-based screening(using an existing f

157、ramework)Positive/best in classes screening(including the best performers)Preliminary/Deep-dive ESG Due Diligence(DD)Integrating material ESG issues into investment assessment,considering risk-adjusted return of the assetIncluding material ESG issues in the investment memo and negotiation of the inv

158、estment agreementEvaluating ESG factors and Integrating material ESG issues into ongoing investment assessment,considering risk-adjusted return of the assetMaking investment decision,taking into account the risk-adjusted return per ESG evaluationTRANSITIONRISK MITIGATIONOnboarding:prioritising and p

159、lanning to manage the ESG issues of the portfolio company)Engagement:working with the portfolio companyEngagement(discussing ESG issues with portfolio companies to improve their ESG practices and disclosure,either individually,in collaboration with other investors,or through service providers)Voting

160、(researching,casting votes and communicating with portfolio companies before and after the Annual General Meeting(AGM)Monitoring:assessing whether the portfolio companys ESG goals are being met and ESG issues are being managed properlyExit when screening criteria are broken and/or material ESG issue

161、s are unsolvableExit with vendor DD conducted to reduce risk and enhance company valueExit when screening criteria are broken and/or material ESG issues are unsolvableSTEWARDSHIP PROCESSINVESTMENT PROCESSBUSINESSNEEDOUTCMEAnalysis&ResearchQualitative ScreeningQuantitative ScreeningESG Risk-adjusted

162、Valuation/Investment DecisionExitPost-InvestmentManagementCASE FOR CHANGEWHERE TO PLAY&HOW TO WINFINAL REMARKSHOW WE CAN HELP2.4.INVESTMENT PROCESSBack to ESG Transformation Framework 34 2022 KPMG Advisory(Hong Kong)Limited,a Hong Kong(SAR)limited liability company and a member firm of the KPMG glob

163、al organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.2022 Quinlan&Associates Limited,a company incorporated in Hong Kong.All rights reserved.CASE FOR CHANGEFINAL REMARKSHOW WE CAN HELPWHERE TO PLAY&H

164、OW TO WINQUALITATIVE&QUANTITATIVE SCREENINGAsset managers must apply qualitative and/or ESG data-driven quantitative screening methodologies when building their portfolios;however,there is currently no“golden source of truth”when it comes to ESG market dataSource:KPMG/Quinlan&Associates analysisNote

165、:1.Please refer to REFERENCES for more details.Definition1Notable exampleNorm-Based ScreeningScreening of investments against minimum standards of business practices based on international normsStandards:UN TreatiesOECD GuidelinesHuman Rights DeclarationNegative ScreeningThe exclusion from a fund or

166、 portfolio of certain sectors,companies,or practices based on specific ESG criteriaIndustries:TobaccoGamblingFossil FuelsPositive ScreeningThe active inclusion of companies with positive ESG performance relative to industry peersESG Data CoverageEnvironmentSocialGovernanceQualitative and Quantitativ

167、e ScreeningNorm-Based Screening,Negative Screening and Positive ScreeningData Provider#1Data Provider#2Data Provider#3Main Data Source3,000+alternative media sourcesCompany disclosuresCorporate filingsCompany websitesNews sourcesCorporate filingsCompany websitesNews sourcesIndicators250+500+600+ESG

168、Data CoverageEnvironmentalDamage Resource Usage Future Planning -SocialSupply Chain-Human Resources-External Efforts-GovernanceCompany-Risks-Executive Rights Challenges in Filtering the Best-In-Class CompaniesLack of standardisation in third-party ESG data-Relatively Low CoverageComprehensive Covera

169、geQUALITATIVEQUANTITATIVE35 2022 KPMG Advisory(Hong Kong)Limited,a Hong Kong(SAR)limited liability company and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.2022

170、Quinlan&Associates Limited,a company incorporated in Hong Kong.All rights reserved.CASE FOR CHANGEFINAL REMARKSHOW WE CAN HELPWHERE TO PLAY&HOW TO WINRISK-ADJUSTED VALUATION ESG factors are increasingly being incorporated into valuation models to support investment decisionsSource:KPMG/Quinlan&Assoc

171、iates analysisNote:1.Please refer to REFERENCES for more details.Actively vs.passively managed productsNon-ESG elements in valuationValuation process of integrating ESG factorsFundamentalStrategiesActiveForecasted financialsRevenueOperating costAsset book valueCapital expenditureAdjust the impact of

172、 ESG factors into the forecasted financials and via valuation modelsDividend discount modelDiscounted cash flow model Adjusted present value modelQuantitativeStrategiesActiveValue sizeSizeMomentumGrowthVolatilityConstruct models integrating ESG factors alongside non-ESG factorsSmart BetaStrategiesAc

173、tiveFinancial weightUse ESG factors and scores as a weight in portfolio construction to create excess risk-adjusted returns,reduce downside risk and/or enhance portfolios ESG risk profilePassive&EnhancedPassive StrategiesPassiveNon-ESG stock indexApply adjustment for the index constituent weights by

174、 taking ESG risk profiles into considerationApproaches of Incorporating ESG Factors by Investment Strategy1Case study on Passive&Enhanced Passive StrategiesA stock index is established based on the mainstream index in the Eurozone.All components of the parent index are included in this stock index b

175、ut are over-and under-weighted according to sector-based proprietary ESG KPI integration scores,which reduces the large-cap bias associated with mainstream indices and other ESG indices.Integration ScoreComponent Weights0-20Under-weighted 50%20.01-40Under-weighted 25%40.01-60No change60.01-80Over-we

176、ighted 25%80.01-100Over-weighted 50%CASE FOR CHANGEWHERE TO PLAY&HOW TO WINFINAL REMARKSHOW WE CAN HELP2.5.STEWARDSHIP PROCESSBack to ESG Transformation Framework 37 2022 KPMG Advisory(Hong Kong)Limited,a Hong Kong(SAR)limited liability company and a member firm of the KPMG global organisation of in

177、dependent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.2022 Quinlan&Associates Limited,a company incorporated in Hong Kong.All rights reserved.CASE FOR CHANGEFINAL REMARKSHOW WE CAN HELPWHERE TO PLAY&HOW TO WINCurrent-stat

178、e Stewardship Mature Active StewardshipAPPROACHCompliantActivistSTEWARDSHIPGOALSelective E/S/G issues meeting regulatory expectationsTied to key sustainable development goals or issues and connected to firms ESG vision&ambitionIMPLEMENTATIONCOORDINATIONLightly-staffed stewardship teamExpertise acros

179、s sectors,regions and themesMONITORINGHigh-level ESG evaluation processSpecific,tailored KPIs tied to deepen sustainability researchENGAGEMENTSolely relying on risk-and-return driven engagementSet clear framework to define:Engagement channelsPoint of contactTimelinesESCALATIONNo escalation communica

180、tion implementedDevelop clear communication in the event of unsuccessful engagement to publicDISCLOSUREFocus on activity reportingTransparent and outcome-based reporting to clientsESG EngagementAsset ManagersACTIVE STEWARDSHIPShareholder activism is an important part of ESG investing(including engag

181、ement and voting processes),which may be outsourced to specialist providersSource:KPMG/Quinlan&Associates analysisOutsource Active OwnershipSome asset managers choose to outsource active ownership activities to external third-party specialist service providersAsset managers need to identify key ESG

182、voting and engagement frameworks that they want third parties to followManagers also need to report to clients periodicallyProcessIssue PrioritisationState how asset managers prioritise certain issues that they choose to vote on(or not)Decision MakingDescribe the process to inform voting decisions,i

183、ncluding proxy voting advisors and internal researchRecord TransparencyExplain how asset managers keep a record of votes cast and relevant results to report transparentlyExample:VotingProcesses&ResultPROPOSITION PROCESS38 2022 KPMG Advisory(Hong Kong)Limited,a Hong Kong(SAR)limited liability company

184、 and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.2022 Quinlan&Associates Limited,a company incorporated in Hong Kong.All rights reserved.CASE FOR CHANGEFINAL RE

185、MARKSHOW WE CAN HELPWHERE TO PLAY&HOW TO WINBEST PRACTICESome ESG-focused active managers have built up specialist expertise to engage investee companies on specific ESG issues,which can be a source of competitive advantageSource:KPMG/Quinlan&Associates analysis Note:1.Please refer to REFERENCES for

186、 more details.REPORTING ITEMSEXAMPLES FROM A SIGNATORY ASSET MANAGERGOVERNANCE1PURPOSE&STRATEGYOutline that their stewardship purpose is to work together to build better financial futures 2RESOURCES&INCENTIVESEstablish a committee which has oversight of all sustainable investments3CONFLICT MANAGEMEN

187、TIssue global conflicts of interest policy document4RISK MANAGEMENTEnhance internal processes to identify and respond to market-wide and systemic risks5POLICIESReview ESG-related policies annuallyINVESTMENT6COMMUNICATIONOffer a range of different ESG and stewardship reports on their website7INTEGRAT

188、IONTailor to the different ownership rights inherent in each asset class8MONITORINGUtilise a variety of service providers to monitor ESG stewardshipENGAGEMENT9ENHANCEMENTMaintain an ongoing dialogue with investee companies through formal meetings and other events10PARTICIPATIONJoin collaboration pro

189、grammes to develop engagement and monitor progress11ESCALATIONDetermine response case-by case and escalate issues with a formal escalation processEXERCISING12IMPLEMENTATIONVote according to stewardship policies and disclose voting results on their websiteUK Stewardship Code12020CASE FOR CHANGEWHERE

190、TO PLAY&HOW TO WINFINAL REMARKSHOW WE CAN HELP2.6.STAKEHOLDER COMMUNICATIONBack to ESG Transformation Framework 40 2022 KPMG Advisory(Hong Kong)Limited,a Hong Kong(SAR)limited liability company and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG Interna

191、tional Limited,a private English company limited by guarantee.All rights reserved.2022 Quinlan&Associates Limited,a company incorporated in Hong Kong.All rights reserved.CASE FOR CHANGEFINAL REMARKSHOW WE CAN HELPWHERE TO PLAY&HOW TO WINIn addition to the fund classification per compliance requireme

192、nts(if any),the products ESG focus/theme,ESG investment strategy and stewardship approaches should be reportedThe composition of underlying assets in the portfolios held by the product should be reportedThe ESG performance and potential ESG impacts that the portfolio holdings may have should be repo

193、rtedExamples:ESG Investment ThemeClimate ChangeAlternative Energyetc.ESG Investment StrategyScreening Methodologyetc.Stewardship and Engagement ApproachExamples:%of Positive Impact Assets%of Alternative Energy Companies%of Green Buildingsetc.%of Negative Impact Assets%of Tobacco Industries%of Gambli

194、ng Industriesetc.Examples:Carbon FootprintESG Risk Exposures and ControversiesEnvironmental RisksWater Pollution Exposure,etc.Social RisksHuman Rights Violations,etc.Governance RisksCorruption Risks,etc.WITH REGULATORS:PRODUCT DISCLOSUREBeyond compliance requirements on ESG-related fund classificati

195、ons,asset managers should provide ESG reporting to showcase product-level ESG investment themes,strategies,stewardship approaches,and ESG performanceSource:KPMG/Quinlan&Associates analysisHow will the product achieve its ESG proposition?What kind of underlying assets does the product invest in?What

196、are the ESG impacts of investing in the product?METRIC 1ESG Investment MethodologyMETRIC 3Portfolio ESG Performance and ImpactsMETRIC 2Portfolio HoldingsCommunicationProduct Level41 2022 KPMG Advisory(Hong Kong)Limited,a Hong Kong(SAR)limited liability company and a member firm of the KPMG global or

197、ganisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.2022 Quinlan&Associates Limited,a company incorporated in Hong Kong.All rights reserved.CASE FOR CHANGEFINAL REMARKSHOW WE CAN HELPWHERE TO PLAY&HOW TO

198、 WINWITH INVESTORS:CLIENT REPORTINGIn addition to their financial performance,asset managers should disclose the overall ESG performance of their clients investment portfolios,including product-level ESG information on portfolio holdingsSource:KPMG/Quinlan&Associates analysis 02030401Client Portfoli

199、o HoldingsPortfolio InvestmentReturnsPortfolio ESG Performance&ImpactsProduct-level ESG InformationTechnology drivenData enabledCommunicationClient ReportingSampleSustainable Fund Portion by EU RegulationsPortfolio SummaryCorporate Sustainability ScoreCarbon Footprint(emissions of CO2 inmillions met

200、ric tons)PortfolioBenchmarkScope 1 and 22.50.8Scope 31.71.2Portfolio HoldingsFundHoldingsAsset%SustainabilityRatingSustainabilityRiskCarbonRiskOverallSustainable?Fund A35.004MediumLowYesFund B22.004MediumHighYesFund C19.003LowLowYesFund D13.002SevereLowNoFund E11.002SevereHighNoAsset HoldingsAsset%S

201、ustainability RatingESG Risk RatingHighest Controversy LevelCarbon IntensityAsset A5.004LowLow18.9Asset B5.003MediumModerate29.1Asset C5.002LowLow34.2Asset D 5.002MediumLow50.8Asset E5.001LowHigh98.4Sovereign Sustainability ScoreCarbonRisk ScorePortfolioBenchmark2723.2PortfolioBenchmark4233.5Portfol

202、ioBenchmark2330Sustainable Attributes(Yes)60%Sustainable Attributes(No)30%Not Analyzed10%42 2022 KPMG Advisory(Hong Kong)Limited,a Hong Kong(SAR)limited liability company and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a privat

203、e English company limited by guarantee.All rights reserved.2022 Quinlan&Associates Limited,a company incorporated in Hong Kong.All rights reserved.CASE FOR CHANGEFINAL REMARKSHOW WE CAN HELPWHERE TO PLAY&HOW TO WINWITH SHAREHOLDERS:CORPORATE SUSTAINABILITY REPORTAsset managers should also look to di

204、sclose ESG information at the enterprise level to all stakeholders,in line with international ESG standards and/or frameworksSource:KPMG/Quinlan&Associates analysisA good Asset Management Company(AMC)sustainability report should include:1ESG Definition,Vision and Objectives2ESG Governance,Policies a

205、nd Guidelines3ESG Integration and Stewardship Approach4ESG Performance and Impact DisclosureESG vision,ambition,and objectivesDefinition of responsible/ESG investmentHow the funds portfolios are broken down on an ESG-basisESG governance structure with well-defined delegation and escalation processes

206、ESG-related policies that are material to the funds daily operationsResponsible/ESG investment policies and management proceduresOverview of ESG integration approach into investing processesHow its ESG priorities in investing are givenOverview of its ESG engagementsHow the companys strategy is imple

207、mented to fulfil its fiduciary duty to its clientsHow the company leverages its resources to achieve its ESG goalsInvestment strategys positive impact with quantified impact metrics and/or case studiesESG performance report with ESG key performance indicators(KPIs)CASE FOR CHANGEWHERE TO PLAY&HOW TO

208、 WINFINAL REMARKSHOW WE CAN HELP2.7.CORPORATE STRUCTUREBack to ESG Transformation Framework 44 2022 KPMG Advisory(Hong Kong)Limited,a Hong Kong(SAR)limited liability company and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a pri

209、vate English company limited by guarantee.All rights reserved.2022 Quinlan&Associates Limited,a company incorporated in Hong Kong.All rights reserved.CASE FOR CHANGEFINAL REMARKSHOW WE CAN HELPWHERE TO PLAY&HOW TO WINAsset Management CompanyPARTIALCONVERSIONNEW PRODUCT LAUNCHSPIN-OFFINTEGRATIONESG F

210、OCUSEDSUBSIDIARYNON-ESG FOCUSEDSUBSIDIARYIntegrating ESG considerations into the investment process of select productsLaunching new ESG-focused investment products to provide ESG investment channelsLaunching a“green”subsidiary that provides ESG-focused products onlyLaunching a“brown”subsidiary for n

211、on-ESG funds that may be subject to controversyESG FocusedSubsidiaryNon-ESG FocusedSubsidiaryInvestmentProductsESG Investment ProductsESG Investment ProductsNon-ESG Investment ProductsInvestmentProductsInvestmentProductsFULL-SCALECONVERSIONIntegrating ESG considerations into the investment process o

212、f all products in the entire portfolioInvestmentProductsInvestmentProductsRESTRUCTURING OPTIONSFinally,consideration should be given to setting-up a fit-for-purpose corporate structure that can best deliver on an asset managers ESG proposition,including the potential for“brown”and/or“green”spin-offs

213、Source:KPMG/Quinlan&Associates analysisCorporate StructureIntegration&Spin-off Approaches45 2022 KPMG Advisory(Hong Kong)Limited,a Hong Kong(SAR)limited liability company and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a privat

214、e English company limited by guarantee.All rights reserved.2022 Quinlan&Associates Limited,a company incorporated in Hong Kong.All rights reserved.CASE FOR CHANGEFINAL REMARKSHOW WE CAN HELPWHERE TO PLAY&HOW TO WINRESTRUCTURING BENEFITSAdapting a fund managers corporate structure can not only help t

215、o mitigate ESG-related risks,but can also help it to optimise its fund operations processesSource:KPMG/Quinlan&Associates analysisDescriptionCostRisk MitigationMitigate regulatory and reputational risks with full-scale ESG integrationExisting Investors DemandsSatisfy growing demand of existing inves

216、tors for ESG integration/new product launchesESG SpecialisationDedicate all ESG talent and resources to provide specialised ESG solutionsCapital AttractionAttract global investors with the highest ESG requirements with focused ESG offeringsFund MaintenanceMaintain the reputation,focus,and business a

217、gility of the original fund(s)Opportunity CaptureCapture alpha-generating opportunities in non-ESG sectors for select investorsLowHighFUND MAINTENANCEEXISTING DEMANDSRISKMITIGATIONOPPORTUNITY CAPTUREESG SPECIALISATIONCAPITAL ATTRACTIONIntegration ApproachGreen Spin-off Brown Spin-off IntegrationGree

218、n Spin-off Brown Spin-offBenefitsIntegration&Spin-off ApproachesCASE FOR CHANGEWHERE TO PLAY&HOW TO WINFINAL REMARKSHOW WE CAN HELP2.8.DATA&TECHNOLOGYBack to ESG Transformation Framework 47 2022 KPMG Advisory(Hong Kong)Limited,a Hong Kong(SAR)limited liability company and a member firm of the KPMG g

219、lobal organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.2022 Quinlan&Associates Limited,a company incorporated in Hong Kong.All rights reserved.CASE FOR CHANGEFINAL REMARKSHOW WE CAN HELPWHERE TO PLA

220、Y&HOW TO WINESG DATAWith ESG data aggregators adopting different data collection and analysis methodologies,asset managers should carefully consider different data solutions and craft ESG data strategies that allow them to stay ahead of the competitionSource:KPMG/Quinlan&Associates analysisNote:The

221、superscripts represents the partnership with the following companies:1.MSCI,2.S&PIn-House Proprietary DataCollect,process,and analyse ESG data fully in house,with proprietary ESG evaluation metrics and benchmarksPartnerships with Data AggregatorsPartner with data aggregators which collect and distri

222、bute ESG data,and provide ESG ratings and indices for asset managersPartnerships with Alt.Data ProvidersPartner with alternative ESG data providers,which generate ESG data from alternative sources(e.g.social media)by using AI123Japanese Asset ManagerJapanese Asset ManagerSouth Korean Asset ManagerCh

223、inese Asset ManagerEquityBenchmark Data StrategyProprietary Partnership 1 1&2 1 ETFLarge-Cap Focused Small-Cap Focused Active Funds Fixed IncomeBenchmark Data StrategyProprietaryPartnershipETFESG Bond Green Bond Social Bond Bond Issuance Not ApplicableApplicableESG Data StrategiesInvestment Manageme

224、nt48 2022 KPMG Advisory(Hong Kong)Limited,a Hong Kong(SAR)limited liability company and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.2022 Quinlan&Associates Limi

225、ted,a company incorporated in Hong Kong.All rights reserved.CASE FOR CHANGEFINAL REMARKSHOW WE CAN HELPWHERE TO PLAY&HOW TO WINESG TECHNOLOGYSuccessful ESG transformation needs to be enabled by adoption of analytics and applications across key processes including sales and marketing,investment,and e

226、ngagement with client/investee companiesSource:KPMG/Quinlan&Associates analysisSales and Marketing ProcessInvestment ProcessEngagement and CommunicationESG ApplicationsCustomise the client-centric conversation according to clients ESG preferences and beliefsIncorporate material ESG data and insights

227、 into investment decision-making(e.g.screening,risk-adjusted performance)Automate ESG data consolidation into a single report that visualises and analyses the latest dataEnables matching of clients ESG preferences and ESG offeringsSupports active stewardship,client reporting,product disclosure,etc.E

228、SG AnalyticsSegmentation of clients and prospects based on their ESG prioritiesPerform ESG risk and impact analytics with research,portfolio management,trading and operations toolsEvaluate the data readiness in producing the ESG reportAnalyse ESG profile of portfolios and portfolio holdingsEnrich ma

229、chine learning by sharpening the analytics of incoming ESG reporting requirementsCASE FOR CHANGEWHERE TO PLAY&HOW TO WINFINAL REMARKSHOW WE CAN HELP2.9.GOVERNANCE STRUCTUREBack to ESG Transformation Framework 50 2022 KPMG Advisory(Hong Kong)Limited,a Hong Kong(SAR)limited liability company and a mem

230、ber firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.2022 Quinlan&Associates Limited,a company incorporated in Hong Kong.All rights reserved.CASE FOR CHANGEFINAL REMARKSHOW W

231、E CAN HELPWHERE TO PLAY&HOW TO WINCENTRALISED STRUCTUREConsidering ESG integration is a collective effort across multiple departments the traditional,centralised ESG governance structure is not an ideal model for asset managers to considerSource:KPMG/Quinlan&Associates analysisLIMITATIONS WITH CENTR

232、ALISED ESG GOVERNANCESub-Optimal Execution ResultWithout proper delegation of ESG responsibilities at the implementation level,specific ESG strategies and commitments made by the Board and committees will not materialise in the company,both in its day-to-day operations and in the funds investments.C

233、oncentrated Responsibility for Collective EffortsESG responsibilities assigned to other committees will not be thoroughly implemented due to the lack of accountability towards ESG-related matters.High Maintenance CostAsset managers with centralised ESG governance models require more oversight in the

234、ir ESG implementation,thereby incurring additional costs to the organisation.CENTRALISED ESG GOVERNANCE1.Centralise ESG governance responsibilities within the Board,or2.Form a separate centralised ESG Committee reporting to the BoardReview the progress of ESG activitiesRevise and approve the ESG pol

235、icies,active ownership activities,external development opportunities(e.g.third-party data partnership)Propose ESG strategies to the boardImplementation levelBoard levelManagement levelSustainable Investing Working GroupInvestment TeamRisk TeamLegal TeamOperations TeamIR TeamOther Supporting TeamsNom

236、ination CommitteeProxy Voting CommitteeAudit CommitteeInvestment CommitteeESG Committee(Optional)Risk CommitteeChief Sustainability OfficerNo ESG-specific responsibility ESG-specific responsibilityIllustrativeReputational Risk Working GroupOther Working GroupsGroup Executive CommitteeBoard of Direct

237、orsGuidanceDelegation51 2022 KPMG Advisory(Hong Kong)Limited,a Hong Kong(SAR)limited liability company and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.2022 Quin

238、lan&Associates Limited,a company incorporated in Hong Kong.All rights reserved.CASE FOR CHANGEFINAL REMARKSHOW WE CAN HELPWHERE TO PLAY&HOW TO WINImplementation levelBoard levelDECENTRALISED STRUCTUREAsset managers should consider adopting a decentralised governance structure,where ESG responsibilit

239、ies are evenly distributed across the firm,with active delegation and guidance provided by the executive teamSource:KPMG/Quinlan&Associates analysisSUGGESTED APPROACH FOR A SHIFTDelegate specific ESG responsibilities across the organisationESG ownership in committees and at the working level allows

240、for a thorough implementation of ESG values throughout the fund.Each team should bear responsibility for implementing ESG and should be able to provide the board with the relevant ESG metrics when required to supplement the boards decision making.Establish a proper ESG reporting structureA proper or

241、ganisation reporting structure for all ESG-related matters should be established within the firm for both committees and working-level teams.A proper chain of command will help raise accountability across teams throughout the firm.Additionally,employees should be able to escalate ESG-related concern

242、s to the relevant parties to prevent misconduct such as greenwashing.DECENTRALISED ESG GOVERNANCEA decentralised ESG governance structure engages employees across the fund to monitor and implement ESG responsibility in their day-to-day operations and fiduciary duty.As opposed to traditional ESG gove

243、rnance,ESG ownership and responsibility are spread across the organisation,allowing for a more agile and thorough execution of ESG responsibility and values.Establish proper communication pipelineThe board should be able to effectively communicate the funds ESG strategic directory across teams throu

244、gh established communication pipelines.This helps prevent a disconnect between the boards strategic vision and the funds implementation of ESG.Inversely,employees should also be given the opportunity to voice their ESG priorities and concerns to the board.Sustainable Investing Working GroupInvestmen

245、t TeamRisk TeamLegal TeamOperations TeamIR TeamOther Supporting TeamsNomination CommitteeProxy Voting CommitteeAudit CommitteeInvestment CommitteeESG Committee(Optional)Risk CommitteeChief Sustainability OfficerDelegated ESG responsibilityNo ESG-specific responsibility ESG-specific responsibilityIll

246、ustrativeReputational Risk Working GroupOther Working GroupsGroup Executive CommitteeBoard of DirectorsGuidanceDelegationManagement levelCASE FOR CHANGEWHERE TO PLAY&HOW TO WINFINAL REMARKSHOW WE CAN HELP2.10.TALENT&INCENTIVESBack to ESG Transformation Framework 53 2022 KPMG Advisory(Hong Kong)Limit

247、ed,a Hong Kong(SAR)limited liability company and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.2022 Quinlan&Associates Limited,a company incorporated in Hong Kong

248、.All rights reserved.CASE FOR CHANGEFINAL REMARKSHOW WE CAN HELPWHERE TO PLAY&HOW TO WINSuggested Talent Model1.Build:Recruit ESG talent for in-house capabilities2.Partner:Outsource ESG matters to external consultants3.Hybrid:Develop in-house capabilities and external partnershipsTALENTGiven the con

249、siderable demand for ESG expertise in the market,asset managers must identify potential talent gaps and develop appropriate talent acquisition,development and retention strategiesSource:KPMG/Quinlan&Associates analysisFUNCTIONRELEVANT EXPERTISEBoard and Committee(e.g.ESG Committee,etc.)1.Overseeing

250、abilities to manage the companys ESG vision&ambition2.Define and implement suitable ESG management approaches and strategies to evaluate and prioritise ESG-related issues and risks3.Progress reviewing capabilities towards ESG-related goals and targets4.Structuring ability to adjust the company hiera

251、rchy to incorporate ESGFront Office(e.g.Portfolio Managers,Sales,etc.)1.Able to integrate ESG as part of their investment processes2.Great communication skills to understand ESG needs of different clients and promotion skills to recommend suitable ESG funds3.Ability to interpret ESG data and evaluat

252、e how it impacts the investment decisions labourMiddle Office(e.g.Risk Team,Product Team,etc.)1.Ample knowledge regarding ESG regulations of different jurisdictions and standards of different initiatives2.Ability to design ESG fund taxonomy and conduct cost-benefits analysis3.Good understanding of d

253、ifferent ESG data and their vendors4.Capabilities to collect and analyse internal and external ESG data and convert these data into reporting metrics in an industry consistent manner5.Generate client reports according to ESG standards requirementsBack Office(e.g.HR team,IT team,etc.)1.Ability to est

254、ablish ESG-related KPIs scheme and create compensation policy to encourage people to reach it2.Build up a mature ESG technology architecture to smooth the internal communication channel and ESG data flow3.Understand the needed ESG expertise of different positions within company and can develop relat

255、ed ESG training materials4.Great network to external ESG talent poolAsset Mgmt.CompanyPortfolio ManagersESGProfessionalsESGConsultantsHireOutsourceTrainCollaborateTalent ModelIllustrativeRelevant Expertise by FunctionExamples54 2022 KPMG Advisory(Hong Kong)Limited,a Hong Kong(SAR)limited liability c

256、ompany and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.2022 Quinlan&Associates Limited,a company incorporated in Hong Kong.All rights reserved.CASE FOR CHANGEFI

257、NAL REMARKSHOW WE CAN HELPWHERE TO PLAY&HOW TO WINCOMPENSATION&INCENTIVE STRUCTUREConsidering both ESG-and non-ESG-focused fund managers play pivotal roles in running the overall business,albeit with different objectives,a carefully calibrated compensation strategy should be consideredSource:KPMG/Qu

258、inlan&Associates analysisHighLowReturn-Based PerformanceValues-Based PerformanceHighLowESGFund Manager(Values-Focused)Non-ESGFund Manager(Return-Focused)ResponsibilityEnsuring capital inflows&preventing capital outflowsResponsibilityGenerating return for the asset management firm%Management FeeIncen

259、tive FeeShared Salary PoolNon-ESG Fund ManagerESG Fund ManagerDevelop Return vs.Impact-adjusted Compensation MethodologyFund managers are largely driven by financial motives rather than social motivesTrade-offReturn vs ImpactPotential SolutionIllustrativeRESTRUCTURED COMPENSATION MODELcreating balan

260、ced compensation system for fair distribution of return for both ESG and non-ESG managersKEY ENABLERSCorporate Governanceelevating the importance of ESG practices setting the tone from board-levelInternal Communicationconverging with internal stakeholders on roles of ESG fund managersADOPTION CHALLE

261、NGEThere could be an initial outflow of talent,which is a natural resistance stage for any transformation.When ESG becomes the norm in the industry,then such a compensation practice will likely be more accepted.It is a long-term educational processCASE FOR CHANGEWHERE TO PLAY&HOW TO WINFINAL REMARKS

262、HOW WE CAN HELP2.11.MEASUREMENTSYSTEMBack to ESG Transformation Framework 56 2022 KPMG Advisory(Hong Kong)Limited,a Hong Kong(SAR)limited liability company and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English compa

263、ny limited by guarantee.All rights reserved.2022 Quinlan&Associates Limited,a company incorporated in Hong Kong.All rights reserved.CASE FOR CHANGEFINAL REMARKSHOW WE CAN HELPWHERE TO PLAY&HOW TO WINThe existence of an ESG vision and how relevant it is to the companys originalstrategic visionThe exi

264、stence of ESG principles and how similar the established principles are to principles for responsible investmentThe promotion of a culture of diversity,equity and inclusion throughout the organisation and to what extent the company values theseThe frequency of ESG trainings provided to employees to

265、raise their understanding of ESG,including the quality of the training providedThe existence of incentive plans to promote fund-level ESG performance and the range of employees such incentives coverThe readiness of ESG/responsible investment policies and ESG issues reportprocedures The establishment

266、 of an ESG integration committee and its participation frequency(and accountability)on ESG issuesThe establishment of a spin-off committee and its participation frequency(and accountability)on spin-off issuesThe variety of customer segmentation approaches and the conversion extent of segmented clien

267、ts productsThe effectiveness of approaches to communicate with clientsThe variety of measures to avoid greenwashing risks during disclosure/reporting and marketing The existence of ESG investment strategies and the integration progressThe development of an ESG product taxonomy and the product range

268、of the taxonomyThe common sense of active ownership and how clients evaluate their experiencesThe internal disclosure requirements and how these reference international standards/frameworks(TCFD,etc.)The utilisation of internal ESG databases and digital analytic tools,and the sophistication of the a

269、nalytics toolsThe existence of an internal and external ESG data quality audit mechanisms and their frequency/effectiveness The development of internal ESG technologies and integrated completeness with the ESG transformation processesMEASUREMENT SYSTEMTo drive ESG transformation,a measurement system

270、 should be set up to assess the managers current state of maturity vs.leading practices and to identify what is needed to achieve the desired state over timeSource:KPMG/Quinlan&Associates analysisNote:1.Please refer to REFERENCES for more details.ESG Vision/PrinciplesGovernance and LeadershipClient

271、and MarketingESG-integrated Investment ProcessData and TechnologyTalent and IncentivesNumber of principles referenced within PRI frameworkStaff turnoverTraining and qualification rateGender diversity across ranks/departmentsNumber of ESG experts sitting on the BoardCustomer ESG product conversion ra

272、teGreenwashing litigation rateRevenue from the impact fundsTransparency rate of client reportDeployment rate of ESG data/digital tools over timeROI on ESG dataSAMPLEKPIs1KEY MEASUREMENTSCASE FOR CHANGEWHERE TO PLAY&HOW TO WINFINAL REMARKSHOW WE CAN HELP2.12.CHANGEMANAGEMENTBack to ESG Transformation

273、 Framework 58 2022 KPMG Advisory(Hong Kong)Limited,a Hong Kong(SAR)limited liability company and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.2022 Quinlan&Associ

274、ates Limited,a company incorporated in Hong Kong.All rights reserved.CASE FOR CHANGEFINAL REMARKSHOW WE CAN HELPWHERE TO PLAY&HOW TO WINCHANGE MANAGEMENTThe“Make-It”approach simplifies the ESG transformation for asset managers with engaging phases and activitiesSource:KPMG/Quinlan&Associates analysi

275、sMake It Clear Align leaders around ESG strategic aims,ambitions and the scale of change010203Change LeadershipCommunication and EngagementImpact and Measurements of ChangeWorkforce Development and TransitionClearThe“Make-It”Approach Make It Stick Ensure there is capacity in the organisation to sust

276、ain ongoing change05AbleMake It Real Translate the change vision into reality for people in the organisation and define what it means for them03ReadyMake It Happen Move the organisation towards the desired end state and equip people to work in new ways04WillingMake It Known Communicate the ESG visio

277、n and case for change to drive employee ownership02Aware59 2022 KPMG Advisory(Hong Kong)Limited,a Hong Kong(SAR)limited liability company and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guar

278、antee.All rights reserved.2022 Quinlan&Associates Limited,a company incorporated in Hong Kong.All rights reserved.CASE FOR CHANGEFINAL REMARKSHOW WE CAN HELPWHERE TO PLAY&HOW TO WINTRANSFORMING INSIDE-OUTESG is not just integral to investment,but should be integrated across the asset managers cultur

279、e and operationsSource:KPMG/Quinlan&Associates analysisChanging Mindsets and BehavioursESG Sustainability Committee/Working GroupDirectly report to the global operating committee to facilitate the overall strategic ESG implementation Supplier DiversityStrengthen supply chain by helping respective pa

280、rtners to operate in a more sustainable fashionCommunity EngagementEncourages employees to volunteer and give back to the community(e.g.paid volunteering days)Internal Carbon PricingProvide clear guidance to motivate decision-making consistent with corporates sustainability ambition via Scope 1,2,an

281、d 3 emission reduction targetsLearning and DevelopmentSupport employees through training,education and sharing sessions that develop ESG skills across all levels of the organisationInclusive Culture-Diversity,Equity,and InclusionStrengthen the workplace through gender equality and diversity,establis

282、hing a dynamic working environmentESGas a Core ValueFINALREMARKS0361 2022 KPMG Advisory(Hong Kong)Limited,a Hong Kong(SAR)limited liability company and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limit

283、ed by guarantee.All rights reserved.2022 Quinlan&Associates Limited,a company incorporated in Hong Kong.All rights reserved.CASE FOR CHANGEHOW WE CAN HELPFINAL REMARKSWHERE TO PLAY&HOW TO WINBUSINESS AT RISKAlthough many asset managers see ESG as a“box ticking”exercise,it is becoming clear that mere

284、ly complying with ESG requirements is not enough;a clear ESG strategy and operating model are needed to drive real outcomesSource:Refinitiv,KPMG/Quinlan&Associates analysisFund Product CategorySFDR,EuropeNet Capital FlowsUSD billion,Q1 Q3 2022ARTICLE 8“Light green”fund products that have some E or S

285、 characteristics and follow governance practicesARTICLE 9”Dark green”products that have sustainable investment as its objective,and a designated index as a benchmarkBOX-TICKINGSUSTAINBALE STOCK PICKING1234-180-200-150-100-50050HOW WE CAN HELP0463 2022 KPMG Advisory(Hong Kong)Limited,a Hong Kong(SAR)

286、limited liability company and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.2022 Quinlan&Associates Limited,a company incorporated in Hong Kong.All rights reserve

287、d.CASE FOR CHANGEFINAL REMARKSHOW WE CAN HELPWHERE TO PLAY&HOW TO WINESG TRANSFORMATION ROADMAP(SIMPLIFIED OVERVIEW)KPMG and Quinlan&Associates can help you on your end-to-end ESG journey from developing your ESG strategy to adapting and implementing your target operating model,ensuring a successful

288、 transformationSTARTDEVELOP ESG STRATEGYAssess ESG expectations across stakeholdersAnalyse market trends and the regulatory landscapeDefine vision&ambitionAnalyse gaps between current and desired statePREPARE ESG ROADMAP&ACTION PLANIdentify the right priorities,targets,and action plan to implement t

289、he ESG strategyDevelop measurement systems(i.e.KPIs)to effectively track the status of ESG transformationDESIGN ESG GOVERNANCE STRUCTUREAssess the most suitable governance structure for the organisationEstablish ESG governance structure based on the roadmap and uphold the measurement systemREPORT&DI

290、SCLOSEAssess reporting needs and requirementsDevelop stakeholder communication mechanisms and conduct ESG reportingImplement effective data collection and reporting systemsEDUCATE&TRAIN PEOPLEIdentify key talent,skill,and knowledge gaps to plan out tailored training modules suitable for the organisa

291、tionDevelop and deliver ESG training programmes for board directors,executives,portfolio managers,and analystsIMPLEMENT&INCORPORATE ESGApply ESG strategy across differing asset classes and across varying client mandatesIntegrate the ESG strategy into operations,including sales,marketing,investment d

292、ecisions,and outsourcing12365464 2022 KPMG Advisory(Hong Kong)Limited,a Hong Kong(SAR)limited liability company and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.

293、2022 Quinlan&Associates Limited,a company incorporated in Hong Kong.All rights reserved.REFERENCES(1/2)Slide 9:REGULATORY PRESSURE1.Sustainability Report 2021/2022,Monetary Authority of Singapore,July 2022,https:/www.mas.gov.sg/-/media/MAS-Media-Library/publications/sustainability-report/2022/MAS-Su

294、stainability-Report-2021_2022.pdf?la=en&hash=4B850000BE2CE8279A1913D29763C0370E3B8E702.MAS Launches Worlds First Grant Scheme to Support Green and Sustainability-Linked Loans,Monetary Authority of Singapore,22 November 2020,https:/www.mas.gov.sg/news/media-releases/2020/mas-launches-worlds-first-gra

295、nt-scheme-to-support-green-and-sustainability-linked-loans3.Sustainability Report 2020/2021,Monetary Authority of Singapore,9 June 2021,https:/www.mas.gov.sg/publications/sustainability-report/2021/sustainability-report4.MAS sets up sustainability group,appoints Chief Sustainability Officer,Monetary

296、 Authority of Singapore,7 September 2021,https:/www.mas.gov.sg/news/media-releases/2021/mas-sets-up-sustainability-group-appoints-chief-sustainability-officer5.China issues guideline on high-quality development of banking,insurance sectors,China Banking and Insurance Regulatory Commission,5 January

297、2020,http:/ moves to standardize fragmented ESG reporting landscape,Thomson Reuters,6 October 2020,https:/ on green bond issuers underlined,The Peoples Bank of China,National Development and Reform Commission and the China Securities Regulatory Commission,23 April 2021,http:/ Releases the Green Fina

298、nce Guidelines for Banking and Insurance Sectors,China Banking and Insurance Regulatory Commission,2 June 2022,http:/ for Green Sustainable Finance,Securities and Futures Commission,August 2022,https:/www.sfc.hk/-/media/EN/files/COM/Reports-and-surveys/SFC-Agenda-for-Green-and-Sustainable-Finance_en

299、.pdf10.Annual Report 2021-22,Securities and Futures Commission,May 2022,https:/www.sfc.hk/-/media/files/ER/Annual-Report/21-22/annual-report-21_22-full_e.pdf11.Appointment of Chef Sustainable Finance Officer,Financial Services Agency,15 March 2019,https:/www.fsa.go.jp/en/news/2019/20190315_CSFO.html

300、12.Attention to Sustainability and ESG,Financial Services Agency,15 February 2021,https:/www.fsa.go.jp/en/refer/councils/follow-up/material/20210215-01.pdf13.Revisions of Japans Corporate Governance Code and Guidelines for Investor and Company Engagement,Financial Services Agency,6 April 2021,https:

301、/www.fsa.go.jp/en/news/2021/20210406/01.pdf14.The JFSAs Strategy on Sustainable Finance(July 2021-June 2022),Financial Services Agency,November 2021,https:/www.fsa.go.jp/inter/etc/20211104/01.pdfSlide 10:REPUTATIONAL PRESSURE1.Deutsche Banks DWS and allegations of greenwashing,Reuters,9 June 2022,ht

302、tps:/ 11:CAPITAL PRESSURE(1/2)-ASSET MANAGER SELECTION1.Hong Kong Private Wealth Management Report 2020,KPMG&Private Wealth Management Association,November 2020,https:/home.kpmg/cn/en/home/insights/2020/11/hong-kong-private-wealth-management-report-2020.html2.Hong Kong Private Wealth Management Repo

303、rt 2022,KPMG&Private Wealth Management Association,October 2022,https:/home.kpmg/cn/en/home/insights/2022/10/hong-kong-private-wealth-management-report-2022.html65 2022 KPMG Advisory(Hong Kong)Limited,a Hong Kong(SAR)limited liability company and a member firm of the KPMG global organisation of inde

304、pendent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.2022 Quinlan&Associates Limited,a company incorporated in Hong Kong.All rights reserved.REFERENCES(2/2)Slide 14:OPPORTUNITIES AHEAD(1/2)1.JPMorgan Climate Change Solutio

305、ns ETF prospectus,J.P.Morgan,8 December 2021,https:/ Shares Affordable Housing MBS ETF prospectus,Impact Shares,25 October 2022,https:/impactetfs.org/owns-etf/3.SPDR SSGA Gender Diversity Index ETF prospectus,SPDR,31 October 2022,https:/ 21:REGULATORY EXPECTATIONS-THE PUSH“1.Regulation(EU)2019/2088

306、of the European Parliament and of the Council,Official Journal of the European Union,27 November 2019,https:/eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A32019R20882.Sustainability Disclosure Requirements(SDR)and Investment Labels,Financial Conduct Authority,accessed on 28 November 2022,https

307、:/www.fca.org.uk/publication/consultation/cp22-20.pdf3.Laws and Rules,U.S.Securities and Exchange Commission,accessed on 28 November 2022,https:/www.sec.gov/investment/laws-and-rules4.Guidelines on Environmental Risk Management(Asset Managers),Monetary Authority of Singapore,December 2020,https:/www

308、.mas.gov.sg/-/media/MAS/Regulations-and-Financial-Stability/Regulations-Guidance-and-Licensing/Securities-Futures-and-Fund-Management/Regulations-Guidance-and-Licensing/Guidelines/Guidelines-on-Environmental-Risk-Management-for-Asset-Managers.pdf5.Consultation Conclusions on the Management and Discl

309、osure of Climate-related Risks by Fund Managers,Securities and Futures Commission,August 2021,https:/apps.sfc.hk/edistributionWeb/api/consultation/conclusion?lang=EN&refNo=20CP5Slide 34:QUALITATIVE&QUANTITATIVE SCREENING1.Screening,Principles for Responsible Investment,Principles for Responsible Inv

310、estment,accessed on 28 November 2022,https:/www.unpri.org/download?ac=10608Slide 35:RISK-ADJUSTED VALUATION1.A Practical Guide to ESG Integration for Equity Investing,Principles for Responsible Investment,accessed on 28 November 2022,https:/www.unpri.org/listed-equity/a-practical-guide-to-esg-integr

311、ation-for-equity-investing/10.articleSlide 38:BEST PRACTICE1.The UK Stewardship Code 2020,Financial Reporting Council,accessed on 28 November 2022,https:/www.frc.org.uk/getattachment/5aae591d-d9d3-4cf4-814a-d14e156a1d87/Stewardship-Code_Dec-19-Final-Corrected.pdfSlide 56:MEASUREMENT SYSTEM1.KPIs for

312、 ESG,The European Federation of Financial Analysts Societies,accessed on 28 November 2022,https:/ec.europa.eu/docsroom/documents/1547/attachments/1/translations/en/renditions/native66 2022 KPMG Advisory(Hong Kong)Limited,a Hong Kong(SAR)limited liability company and a member firm of the KPMG global

313、organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.2022 Quinlan&Associates Limited,a company incorporated in Hong Kong.All rights reserved.ABOUT KPMGAcknowledgement:Project team:Christoph Zinke,Chee H

314、oong Tong,Angus Choi,Jolly Dan,Cheryl Fan,Blythe Du,Jarvis Bu,Katherine Ho,Timothy Winata.Editor:Philip Wiggenraad.Designer:Kaki WongAndrew WeirSenior Partner,Hong Kong SAR,Vice Chairman,KPMG China and Global Head of Asset ManagementKPMG InternationalT:+852 2826 7243E:Jianing SongPartner,Head of Adv

315、isory,Hong Kong SARKPMG ChinaT:+852 2978 8101E:Bonn LiuPartner,Head of Financial Services,Banking and Capital Markets,Hong Kong SAR,KPMG China and Head of Asset ManagementASPAC regionT:+852 2826 7241E:Wei LinPartner,Head of Environmental,Social and GovernanceKPMG ChinaT:+86 2122 123508E: Vivian Chui

316、Head of Securities&Asset Management,Hong Kong SARKPMG ChinaT:+852 2978 8128E:KPMG China has offices located in 31 cities with over 15,000 partners and staff,in Beijing,Changchun,Changsha,Chengdu,Chongqing,Dalian,Dongguan,Foshan,Fuzhou,Guangzhou,Haikou,Hangzhou,Hefei,Jinan,Nanjing,Nantong,Ningbo,Qing

317、dao,Shanghai,Shenyang,Shenzhen,Suzhou,Taiyuan,Tianjin,Wuhan,Wuxi,Xiamen,Xian,Zhengzhou,Hong Kong SAR and Macau SAR.Working collaboratively across all these offices,KPMG China can deploy experienced professionals efficiently,wherever our client is located.KPMG is a global organisation of independent

318、professional services firms providing Audit,Tax and Advisory services.KPMG is the brand under which the member firms of KPMG International Limited(“KPMG International”)operate and provide professional services.“KPMG”is used to refer to individual member firms within the KPMG organisation or to one o

319、r more member firms collectively.KPMG firms operate in 144 countries and territories with more than 236,000 partners and employees working in member firms around the world.Each KPMG firm is a legally distinct and separate entity and describes itself as such.Each KPMG member firm is responsible for i

320、ts own obligations and liabilities.KPMG International Limited is a private English company limited by guarantee.KPMG International Limited and its related entities do not provide services to clients.In 1992,KPMG became the first international accounting network to be granted a joint venture licence

321、in the Chinese Mainland.KPMG was also the first among the Big Four in the Chinese Mainland to convert from a joint venture to a special general partnership,as of 1 August 2012.Additionally,the Hong Kong firm can trace its origins to 1945.This early commitment to this market,together with an unwaveri

322、ng focus on quality,has been the foundation for accumulated industry experience,and is reflected in KPMGs appointment for multidisciplinary services(including audit,tax and advisory)by some of Chinas most prestigious companies.Key ContactsAngus ChoiPartner,Climate and SustainabilityHong Kong SARKPMG

323、 ChinaT:+852 2847 5160E:Chee Hoong TongPartner,Asset ManagementHong Kong SARKPMG ChinaT:+852 3927 4609E:Dr Christoph ZinkePartner,Head of Global Strategy Group,ASPACKPMG ChinaT:+852 2140 2808E:67 2022 KPMG Advisory(Hong Kong)Limited,a Hong Kong(SAR)limited liability company and a member firm of the

324、KPMG global organisation of independent member firms affiliated with KPMG International Limited,a private English company limited by guarantee.All rights reserved.2022 Quinlan&Associates Limited,a company incorporated in Hong Kong.All rights reserved.Benjamin QuinlanCEO&Managing PartnerQuinlan&Assoc

325、iatesT:+852 2618 5000E:ABOUT QUINLAN&ASSOCIATESAcknowledgement:Project team:Benjamin Quinlan,Justin Chung,Alison HuQuinlan&Associates is a leading independent strategy consulting firm specialising in the financial services industry.We are the first firm to offer end-to-end strategy consulting servic

326、es.From strategy formulation to execution,to ongoing reporting,communications,and employee training,we translate cutting-edge advice into commercially executable solutions.With our team of top-tier financial services and strategy consulting professionals and our global network of alliance partners,w

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