INVESTING TREND

Investors weigh in on sustainable projects due to concerns over COVID-19 and severe weather

Global entrepreneurs are looking beyond traditional investments and sinking money into sustainable and impact investing, with governments linking economic recovery to industries that are more concerned with environmental, social and governance standards. Sophie He reports.

‘Previously, people would ask: Why should I invest in sustainable projects? But now, we would tell them: Why do you want to invest in projects that aren’t sustainable?” says Amy Lo Choi-wan, co-head of wealth management Asia-Pacific at UBS Global Wealth Management.

“Why would you invest in a company that pollutes the environment, uses child labor or has poor corporate governance?” she asks her potential clients.

As the COVID-19 pandemic rages on, more of her clients now like to talk about sustainable investment and are willing to sink their money into sustainable projects, Lo, who’s also chief executive of UBS Hong Kong, told China Daily.

UBS — a private investment bank with $488 billion in core sustainable assets under its management — said last month sustainable investments are now its preferred solution for private clients investing globally.

It recommends sustainable rather than traditional investment for private international investors because, basically, it believes that a 100 percent sustainable portfolio can deliver similar or even higher returns, and many sustainable investors have done better.

According to Lo, UBS Hong Kong’s 100 percent sustainable cross-asset portfolio in its balanced strategy has rebounded 26 percent since the end of the market sell-off from March to July this year, with a positive performance for the whole year.

As a result, UBS has grown its number of Asia-Pacific clients in a 100 percent sustainable cross-asset portfolio, as well as funds, by 50 percent in the first seven months of 2020.

Apart from a strong track record of sustainable investment to show investors they need not worry about returns compared to traditional investment, what they do ask now is how the world economy will perform after the pandemic and what industries will stand out, says Mario Knoepfel, head of sustainable and impact investing advisory APAC at UBS Global Wealth Management.

Also, what companies will emerge stronger and healthier and what will be a better position for growth? He believes this is very important because while overall sustainable development is a long-term goal, how investors position their portfolios is equally crucial.

“What we’re seeing now is countries and governments worldwide linking economic recovery and relief packages to industries that are sustainable and energy-efficient, and helping the transition to a lower carbon economy. So, it’s even more important to invest in the right companies as we come out of COVID-19,” Knoepfel told China Daily.

Daniel Young, partner at Withers — an international law firm that represents a significant number of wealthy individuals and families around the world — says they’ve noted greater interest from clients in sustainable investing, which is becoming increasingly the mainstream.

The coronavirus crisis and the recent weather phenomena, such as wild fires in the United States, have also helped to highlight the impact of sustainable investing, he says.

Wealthy individuals, found ations, trusts and family offices are well-placed to drive positive societal change through their investments and business operations in sustainability. “We’re working with clients in Asia to set up family foundations or philanthropic trusts, and ESG (environmental, social and governance) in philanthropy is a growing consideration,” says Young.

“T he coronavirus shock has reshaped the world and pushed investors to adopt a more sustainable approach in their investments, as sustainability and environmental concerns are becoming more prevalent than ever before.”

Tony Wong, founder of ESG reporting and consulting firm Alaya Consulting, thinks that investors, evolving from a traditional focus on environmental and governance issues, will concentrate heavily on social matters, including health and safety, remote working, diversity and inclusion, cybersecurity and executive compensation.

They’ll be more stringent about greenwashing, and companies will have to be concerned about the impact, as well as risk management.

For enterprises, the pandemic has illustrated the importance of building trust with stakeholders, which is a long-term process accomplished by incorporating ESG into companies’ daily operations. Companies can leverage COVID-19 to review their risk resilience and identify material issues, helping them to stay ahead of their competitors, says Wong.

As ESG issues become paramount, stronger industry-specific guidance has to be developed. Collaboration will be the key in moving forward, and companies should be open to working with policymakers, NGOs and other companies across sectors, he reckons.

Investment education

Going forward, Lo believes investment education is important. Sustainable investment has been a hot topic among bankers — something that’s vital and can make a distinct difference.

Banks are aware this is the mega trend, and UBS has been offering a lot of investment education for its bankers so they can go and talk to their clients.

“We also offer plenty of investment education for our clients as increasing their awareness is critical. And, knowing the real benefit will be seen from the performance and investment diversification, as well as the social impact on the community, I think that would be helpful,” says Lo.

Hong Kong, as an international financial center, should not lag behind in sustainable investment.

ESG is no longer a CSR (corporate social responsibility) or reputational issue. It represents pre-financial, operational and compliance risks for companies, and failure to manage these risks can have adverse financial repercussions. For Hong Kong, this year is pivotal in ESG development, says Wong.

Hong Kong Stock Exchange has implemented its new disclosure requirement since July this year. But, disclosure of ESG performance in annual ESG reports is merely the beginning. It’s more about a company’s long-term strategy for sustainable development, and its day-to-day management in ESG aspects, Wong explains.

Nevertheless, the new requirement will help improve Hong Kong’s regulatory framework for ESG governance and disclosure significantly, and position the city’s bourse as a pioneer in driving ESG investing in Asia.

Sameer Chopra, head of Australia research at BofA Merrill Lynch, reckons that Hong Kong will take the lead in the Asia-Pacific and, in fact, its disclosure requirement for listed companies is the high bar in the region. “I expect stock exchanges on the Chinese mainland to follow through as well,” he told an online media roundtable.

In his view, publicly-listed companies subject to the full disclosure rule are more likely to be traded at a valuation premium.

“It doesn’t matter if you’re doing well or not or if you’re happy to disclose, there’s a premium. And, if you’ve good metrics, that’s even better. But don’t hide information. Personally, I like HKEX’s compliance requirement, so companies can’t hide.”

What we’re seeing now is countries and governments worldwide linking economic recovery and relief packages to industries that are sustainable and energy-efficient, and helping the transition to a lower carbon economy.” Mario Knoepfel, head of sustainable and impact investing advisory APAC at UBS Global Wealth Management