Cover Lecher in Mr. Porter; Fan in Max Mara dress. (Photography by Affa Chan. Styling by Tasha Ling)

Decarbonisation and biodiversity preservation are creating exciting new investment opportunities, say HSBC Global Private Banking and Wealth’s Stefan Lecher and Cheuk Wan Fan

Environmental, social and governance (ESG) concerns are becoming increasingly important for high-net-worth individuals (HNWI) and family offices in Asia as they look to generate more sustainable financial returns and have a positive impact on the world.

This focus on sustainability is expected to increase going forward, with 46 per cent of HNWIs in Hong Kong, mainland China and Singapore expecting their investment portfolios to be made up entirely of ESG investments within the next three to five years, according to research by HSBC Asset Management.

The Covid-19 pandemic has not only accelerated this trend, but also demonstrated that companies with strong ESG ratings tend to be more resilient during economic downturns and periods of market volatility.

Stefan Lecher, regional head of investments & wealth solutions, Asia Pacific, at HSBC Global Private Banking and Wealth, points out that the S&P 500 ESG Index has outperformed the S&P 500 every year for the past five years, with the difference particularly marked in the past two years during the pandemic.

“The climate crisis is the biggest threat to the global economy, according to the World Economic Forum, so ignoring ESG when investing is no longer an option,” explains Lecher.

“It is mission critical that when you build a portfolio fit for the future, it is resilient—not just for the next few years, but for decades to come.”

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Above Fan in Max Mara shirt and Andersson Bell from Net-a-Porter suit. Lecher in Loro Piana suit and Zegna sweater (Photography by Affa Chan. Styling by Tasha Ling)

Decarbonisation Opportunities

HSBC Global Private Banking has identified Asia’s transition to a low-carbon economy as a source of significant opportunities for HNWIs and family offices who want to invest their money to achieve positive outcomes.

Asia Pacific is currently the world’s largest CO2-emitting region, accounting for 52 per cent of global carbon emissions, based on findings from *BP Statistical Review of World Energy. But it is also the largest investor in energy transition. The International Energy Agency forecasts that China will need to spend RMB200 trillion on green transformation between now and 2060—the date at which it aims to be carbon neutral.

HSBC expects this transformation to be replicated across the region, with renewable energy, green infrastructure and the electrification of industrial and transport sectors all set to be key areas for investment.

Cheuk Wan Fan, chief investment officer Asia at HSBC Global Private Banking and Wealth, says: “We believe the decarbonisation process will bring in capital and accelerate innovation to create new growth industries and investment opportunities in Asia.”

While decarbonisation offers new investment opportunities, it is not without risks, one of which is its heavy reliance on frontier technological breakthroughs. “Many climate solutions are linked to technological innovation, but green technology stocks are experiencing market volatility due to concerns that if companies cannot generate near-term earnings, their valuations will suffer as interest rates go up,” Fan explains.

HSBC mitigates this risk by conducting fundamental research to identify the most resilient and competitive players that will benefit from the low-carbon transition. It also conducts stringent product due diligence to eliminate greenwashing risks and to assess whether companies’ solutions will achieve their decarbonisation objectives.

To help clients meet both their ESG and financial objectives, HSBC offers solutions across different asset classes. “Some of these we build on our own, but we also follow an open architecture approach to find the best providers and build partnerships with them, giving clients access to a broad range of ESG solutions that meet their needs,” Lecher says.

It set up a dedicated ESG Solutions team to drive the development of its ESG investment and product proposition and optimise the end-to-end client journey. Leveraging both CIO themes and fundamental research into companies’ ESG performance, its investment counsellors assist family offices and private clients who want to build their own ESG investment portfolios. Clients are provided with regular updates on the performance of their ESG investments and their contribution in the portfolios.

As many clients are business owners and entrepreneurs who seek to adapt their own corporate strategies to manage climate risks, HSBC Global Private Banking also partners with the investment banking and commercial banking divisions within the group to help clients find sustainable financing solutions as they seek to reduce their carbon footprint.

“Our ESG research and insights identify the emerging climate and sustainability trends. These are examples of the added value that we provide to help our clients on their sustainability journey,” Fan says.

*BP Statistical Review of World Energy, July 2021, 70th edition, bp.com

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Above Lecher in Brunello Cucinelli outfit (Photography by Affa Chan. Styling by Tasha Ling)

The climate crisis is the biggest threat to the global economy, according to the World Economic Forum, so ignoring ESG when investing is no longer an option.

- Stefan Lecher -

Promoting Biodiversity

Another key area in which HSBC Global Private Banking has identified investment opportunities is biodiversity. “We believe biodiversity is an underestimated risk and biodiversity investing is an over-looked investment opportunity,” Lecher says.

He explains that biodiversity provides the world with water, oxygen, fertile soil, medicine and food. But biodiversity loss poses a systemic risk to the global economy, with the World Economic Forum estimating that 51 per cent of global economy is dependent on nature.

“We believe that financing biodiversity action is an interesting investment opportunity and will be a critical part of broader ESG investing,” Lecher says.

Examples include investing in natural capital providers, such as sustainable forestry, investments in carbon capture by oceans and coastal ecosystems, as well as innovation around nature-based biofuels. It is a relatively new but rapidly developing investment area.

“We are looking for partners in academia, asset management and other interested parties that do research in this area to help us understand how to educate clients and the public, and create solutions around biodiversity. It is at an early stage, but I believe it will be a big topic in the coming years,” Lecher says.

Another interesting area is the circular economy, an economic model that seeks to reduce both the use and waste of resources. “The old model of ‘take, make and dispose’ needs to be replaced with one in which we reduce waste through technological innovation, and new business models, such as ‘reuse, repair and recycle’,” Lecher says. As such, it creates opportunities for companies in areas such as developing nature-based industrial materials, technology that improves the way water is used, and new ways of integrating ecosystems into city landscapes.

Fan points out that as companies face regulatory and policy actions to help prevent biodiversity loss, and to promote the circular economy, the regulatory drivers will bring new investment opportunities along with new business models to finance them.

“Private investors may not have the specialist investment knowledge and tools to deal with single stock or bond analysis; that is why, through our ESG offering, we identify best-in-class ESG solutions, which are actively managed by highly skilled portfolio managers with specialised expertise in the climate and biodiversity space to help our clients build their sustainable portfolios,” Fan says.

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Above Cheuk Wan Fan, chief investment officer Asia at HSBC Global Private Banking and Wealth (Photography by Affa Chan. Styling by Tasha Ling)

We believe the decarbonisation process will bring in capital and accelerate innovation to create new growth industries and investment opportunities in Asia.

- Cheuk Wan Fan -

A Partnership Approach

Lecher says the fact that HSBC works for both businesses and private investors enables it to engage with its clients on two fronts, giving it a unique insight. The bank is also committed to reducing carbon emissions to net zero in its own operations and supply chain by 2030 or sooner.

At the same time, it strives to support clients through knowledge sharing. “ESG investing and biodiversity is a new and evolving field. It is our duty to help provide research, familiarise our clients with evolving trends, and develop a knowledge base for everyone,” Lecher says.

HSBC Global Private Banking also emphasises educating the next generation about climate change. Before Covid-19, it provided Next Generation clients with first-hand experience of the Borneo rainforest in Malaysia during three annual field trips, to expand their understanding of sustainability. It has continued to host virtual ESG education programmes during the pandemic. It also helps its millennial clients learn how to integrate their sustainability values and ideas into their family wealth, as they are often the driving force for change.

Fan says: “As an industry leader in sustainable finance and investment, with combined capabilities of ESG advisory, climate research, asset management and green financing, we can support our clients, particularly those with family offices, by providing all-round ESG investment and finance solutions.”

Disclaimer: Investments in emerging markets may be extremely volatile and subject to sudden fluctuations of varying magnitude due to a wide range of direct and indirect influences. Such characteristics can lead to considerable losses being incurred by those exposed to such markets. This article is not a personalised communication from HSBC to you and does not constitute and should not be construed as legal, tax or investment advice or a solicitation of the sale or recommendation of any product or service. You should not make any investment decisions based mainly or solely on this article. All investments involve risks and may experience upward or downward movements and may even become valueless.
Issued by The Hongkong and Shanghai Banking Corporation Limited.

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Photography  

Affa Chan

Styling  

Tasha Ling

Hair  

Gloomy Kwok

Make-Up  

Kenji Lee

Stylist's Assistant  

Chiaki Ng

Photographer's Assistant  

Ah Man Lee

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Crown Wine Cellars

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