Old-style negative screening of supposedly "bad" sectors is no longer as important for implementing portfolio decisions as before, according to the study.

Institutional investors in Asia-Pacific expect more from sustainable investing and are less interested in merely screening out β€œbad” companies from portfolios, a study by Schroders has found.

The Schroders Institutional Investor Study 2022, drawing responses from 770 organisations around the world (206 in Asia-Pacific) and conducted in March, found that 48 per cent of APAC institutional investors said that impact investing was their preferred approach to sustainable investing, up from 38 per cent a year ago. 

Most APAC investors prefer full environmental, social and governance (ESG)-themed integration into the investment process, with 72 per cent highlighting it in their top three approaches. 

Negative screening, such as excluding alcohol and tobacco investments, has fallen to 42 per cent from 53 per cent in 2021.

Schroders said the increasing sophistication of sustainable investing in the region, from regulation to additional requirements for sustainability disclosure, demands a more complex investment approach. As such, 82 per cent of APAC investors, up from 78 per cent in 2021, find sustainable investing challenging as they choose to incorporate active ownership, measure impact, and set net-zero targets moving beyond simple exclusionary or integration policies.

Thematic investing is more popular in mainland China and Singapore (58 per cent and 51 per cent, respectively, versus 39 per cent in APAC). 

A positive screening approach that focuses on best-in-class companies is most preferred in Hong Kong (68 per cent versus 55 per cent regionally), while Taiwan institutional investors see impact investing as their preferred approach (71 per cent versus 48 per cent regionally).