Tapping on a growing appetite for sustainable investing

At Allianzgi, active investment can help clients achieve sustainable returns amid rising interest in ESG flows

SUSTAINABILITY is more than a buzzword in today’s world. There is an increasing awareness of environmental, social and governance (ESG) issues globally, and regulations around labour standards and corporate transparency have responded to the growing appetite for environmentally and socially conscious products and services.

Likewise, investors are increasingly integrating ESG metrics into their investment decisions, which has driven the demand for sustainable investment options.

Companies with strong ESG practices are often better equipped to manage and mitigate risks associated with environmental and social issues and are often drivers of innovation as they embrace sustainability.

In this vein, there is an increasingly compelling investment case for sustainable equities, according to Allianz Global Investors, an active asset manager with over 553 billion Euros (S$779.6 billion) in assets, as at Mar 31.

Regulatory push, wooing new generations

Regulatory pressures and events have pushed investors towards considering Esg-centric investments.

In Singapore, the government introduced the world’s first multi-sector transition taxonomy, the Singapore-asia Taxonomy, in December last year.

The new taxonomy defines green and transition activities spanning eight sectors that have the highest environmental impact and provides a clear path forward for companies to understand how they fare on a recognised metric.

With such global taxonomy available, companies can ensure they have strong ESG practices that can woo investors.

Alex Bibani, senior portfolio manager at Allianz Global Investors, said companies can ensure transparency and comprehensiveness in sustainability disclosures, in line with international reporting guidelines, as well as incorporate forward looking plans in business strategy decision-making, such as low carbon transition plans,

“They can also look into transparency and proactiveness in investor relations and access on sustainability topics, as well as incorporate good governance for the company’s sustainability policies and process to prevent greenwashing claims,” he added.

The push towards ESG has piqued the interests of a new generation of investors, too – millennials and Gen Zs. Allianzgi believes that attitudes, values and risk tolerance are most likely to shape investment strategies of this group.

Allianzgi data found that close to 80 per cent of millennials and Gen Z investors surveyed believe their investment firm should influence environmental, social or governance policies or practices, even if doing so decreases the value of their investment.

This is in contrast to Gen X investors, where only around 60 per cent felt this way. Among Baby Boomer investors, the number is even lower – less than 40 per cent of those surveyed.

Millennials are not just interested in making a profit but also in using their investments to create positive social and environmental impact, said Allianzgi.

Net inflows into South-east Asia’s ESG funds have backed up the interest in this area.

Last year, a net US$324.7 million flowed to such funds. This figure is 11.2 per cent higher than the US$291.9 million of net inflows recorded for 2022, based on data from Morningstar.

Allianzgi said improved disclosure requirements and growing interest among both institutional and retail investors were likely reasons that led to the climb in ESG flows.

“While our dedication to sustainability remains steadfast, our perspective on it has evolved as opportunities have broadened,” said Alex.

“Recognising the varied objectives and needs of investors, we’ve designed our sustainable investment offerings to be flexible, catering to different degrees of ESG integration and client inclinations.”

Allianzgi’s investment philosophy is best seen in its Allianz Global Sustainability fund, which makes use of the asset manager’s Best-in-class Sustainable and Responsible Invest (SRI) methodology that filters companies into three distinct categories; worst-in-class, middle-in-class and best-in-class.

Alex said: “Allianz Global Sustainability invests upwards of 75 per cent of its assets in the best-in-class companies, and up to 25 per cent of the assets in the middle-in-class.

As the fund is precluded from investing in companies classified as the worst-in-class, the majority of an investor’s assets are exposed to the best-in-class companies, he added.

Active investment

A pioneer in ESG investing since 2000, Allianzgi’s position as an active investment manager also enables them to commit to constructive engagement dialogue with investee companies.

In 2023, Allianzgi had 481 company engagements covering 374 companies and 32 markets. Engagement activities covered a broad range of topics.

“In 36 per cent of cases, we spoke to companies on corporate governance, business conduct and transparency issues. Other important topics were environmental risks and impacts at 25 per cent, and social risks and impacts at 18 per cent,” said Holly So, sustainability strategist at Allianzgi.

The engagements with the companies rest on two approaches.

Firstly, Allianzgi’s risk-based approach centres the conversation around material ESG risks that it identifies, and the targeting is closely related to the size of Allianzgi’s exposure.

Secondly, the asset manager leads themed engagement projects, which are linked to Allianzgi’s three strategic sustainability themes – climate change, planetary boundaries and inclusive capitalism – or to governance themes within specific or broad markets.

“We identify thematic engagement projects based on topics that we deem to be important for our portfolio investments – for example, energy transition or climate change,” said Holly.

It has observed an increasing number of requests from clients for engagement, in particular on topics such as climate and energy transition.

All engagement results are shared on SUSIE, Allianzgi’s proprietary sustainability data platform, and can be accessed globally.

Behind the fund is an experienced team with consistent performance, noted Alex. “Dedicated portfolio managers and analysts with extensive industry experience are committed to engaging with companies to improve corporate performance on ESG metrics,” he said.

In addition to seeking long-term capital growth, the Allianz Global Sustainability fund offers share classes which aim to provide monthly distributions. As at Apr 12, 2024, the annualised distribution yield stood at 5.34 per cent in US dollar terms for the AM USD share class.

“We believe investors shouldn’t have to sacrifice returns to invest sustainably,” Alex said.

‘Recognising the varied objectives and needs of investors, we’ve designed our sustainable investment offerings to be flexible, catering to different degrees of ESG integration and client inclinations.’ Alex Bibani, senior portfolio manager at Allianz Global Investors