This is the RBC Global Asset Management (RBC GAM) Asian Equity team’s second annual environmental, social and governance (ESG) report.

Since the inception of our first Asia and Japan strategies in April 2014 we have broadened our product range to include a China strategy (2018) and have continued to enhance our efforts to integrate ESG factors into our team’s investment process. Those efforts continue to evolve our approach with a particular focus on assessing the sustainability of the businesses in which we invest.

We are fortunate to interact with - and invest in - some fantastic companies in the region. These have strong management teams that can take advantage of multi-year structural growth opportunities in a region that boasts a growing and aspirational consumer class. Whilst the region continues to lag other developed markets in terms of ESG awareness and commitments, especially in terms of environmental issues or social responsibilities, we feel that change is being effected and things are moving in the right direction. In some countries that change is happening relatively quickly, even if in others real progress is not as rapid as we would like.

Philosophically we focus on ESG in our process as a point of risk mitigation. We try to avoid management teams with the wrong incentive structures that may encourage unscrupulous practices that allow them to abdicate their broader responsibilities to both customers and employees.

We believe that such companies are on unsustainable trajectories that will have a negative impact on their returns to us as shareholders and ultimately our clients’ capital. No company is perfect, however, and when we screen companies using our own proprietary methodologies, or when using our contracted third-party partners, each company we research is flagged for further investigation. We believe that it is our job to ensure the risks - from an ESG perspective - of every investment we make are researched in a disciplined manner and properly understood; this will help generate alpha over the longer term.

Incorporating ESG into our investment discipline is a dynamic and evolving process. We have learned a lot over the last six years and feel that we have made good progress, however we recognize that we must continue to refine and improve what we do.

With equity markets now placed at all-time highs, but with the real economy under immense pressure, we believe that the coming year should provide a unique insight into why portfolios of well-managed businesses that operate in a sustainable manner – and where asset managers integrate ESG into their processes – are likely to outperform their peers.