The rise of sustainable investing in Asia

According to Standard Chartered Private Bank’s 2019 Asia Sustainable Investing Review, High Net Worth Individuals in the region have increasingly opted to include sustainable investments in their portfolios.  Although the majority of such investors were categorized under the ‘Value Seeker’ profile, comprised of investors that declared themselves to be engaged in Sustainable Investment but did not demonstrate knowledgeability, the proportion of such investors dropped from 70% to 66% compared to the 2018 survey. Meanwhile, the proportion of ‘Altruistic Investors’, who claim engagement and indicate a degree of awareness in their survey responses, grew by 9% from 16% to 25%.

 

Sustainable Investment is growing in Asia

 

In 2017, less than 1% of sustainable investments prioritizing environmental, social and governance (ESG) considerations originated from Asia. According to the South China Morning Post, the number of assets managed by Asian entities that have signed on to the UN Principles for Responsible Investment have increased by 87% between 2016 and 2018, reflecting the growing popularity of sustainable investment in the region.

 

Sustainable investments involve choosing companies and funds that objectively contribute to social and environmental progress as well as profits. Choosing sustainable investments gives investors the ability to pursue their values and principles through wealth expansion, and vice versa. The strategy of positively screening investments for ESG (choosing, rather than excluding companies based on principles and their positive social impact) ensures that investors do not need to choose between profitability and values. In fact, positively screened ESG companies consistently perform well, demonstrating lower capital costs, less volatility and conscientious corporate governance. A 2017 MCSI risk and profitability study shows that companies associated with ESG are more profitable, less at risk for drawdowns and less exposed to volatility overall.

 

Responses to a 2019 Economist Intelligence Unit survey indicate that investors in Asia are now more sensitive to potential exposures in their investment portfolios and take a more active role in asset management. Over 50% of Asian survey respondents said that global economic instability was their main concern, while only 41% of British, American and Canadian investors reported these apprehensions. The US-China trade war contributes to volatility in Asia, where many supply chains are centered, and Asian HNWI’s indicated more concern about domestic economic turmoil than their Western counterparts.

 

72% of Asian HNWI’s reported an intention to prioritize ESG considerations and sustainable investments, compared to 43% of HNWI’s in the West. 73% of Hong Kong residents and 89% of Mainland China HNWI’s said they were monitoring their investments more actively due to current economic trends. Placing a portion of funds in stable, ESG screened investments helps diversify investment portfolios during times of risk and capital flight.

 

Sustainable in more than one way

 

The market for sustainable investment has shown a growth rate of 107.4%, according to a report from The Forum for Sustainable and Responsible Investment. Aside from investor activism, the rise of emerging markets also helps drive market growth. As purchasing power and manufacturing sectors grow in regions like Southeast Asia and India, so do the markets for sanitation, energy, transportation and water. Competitive utility providers generally engage in a stable business model with efficient administration by necessity, and with informed decisions and the right timing, these investments are not only stable, but more profitable than the market average.

 

Types of ESG Strategies

 

  • Exclusionary: Avoiding investments based on specified criteria, i.e Tobacco, Alcohol, Firearms

 

  • Integration: Deliberately including ESG factors in financial analysis

 

  • Positive/Best in class: Investment with ESG factors selected by performance

 

  • Impact Investing: Investments that prioritize tackling specific social and environmental issues

 

  • Sustainability Themed Investing: Choosing assets connected to sustainability in themed funds

 

 

 

According to The Economist Intelligence Unit’s 2019 ‘Sustainable and Actionable’ ESG report, ESG investors increasingly consider the long term impact of their decisions on the environment, and the society that their beneficiaries will live in. Institutional investors interviewed in the study indicated that governance was the most important profit factor to consider in ESG. The Hong Kong Monetary Authority’s Investment Portfolio was ranked as 10th  biggest ESG asset owner in the world, while the PRC’s China Investment Corporation was ranked in third place.

 

Who drives sustainable investment?

 

Younger Asian HNWI’s are not alone in stating different investment priorities than their parents. Differences in the stated priorities between Asian and European HNWI’s likely reflects the fact that more Asian investors are millennials. In this respect, Asian HNWI’s share much in common with their age group worldwide. Morgan Stanley’s “Sustainable Signals” report states that 75% of millennials believe their investments can help address climate change and 84% feel they can help eliminate poverty.

 

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