HSBC Private Banking sees rising opportunities and investor demand for sustainable investments in Asia
HSBC Private Banking Focus
Environmental, social and governance (ESG) factors are now part of the mainstream investment practices, driven by regulatory changes, government support, growing interest in sustainability among the millennial generation, and the increasing urgency of environmental issues – particularly in Asia. But an ESG-based approach to investing isn’t just about doing the right thing, according to Fan Cheuk Wan, managing director and head of investment strategy and advisory for Asia for HSBC Private Banking, it may also be a way to improve risk-adjusted returns.
“Investors increasingly see the value of integrating ESG factors into the investment process,” says Fan. “We see ESG factors as not only an effective tool to protect portfolios from environmental, reputational and governance risks—particularly in emerging markets—but one that will result in more optimised investment returns in the long term.”
The idea that sustainable investing involves a compromise when it comes to returns is outmoded. The MSCI Emerging Markets ESG equity index, for example, has outperformed the benchmark MSCI Emerging Markets index by 16 per cent over the past five years. As a result, in Asia and globally, leading asset managers and pension funds are getting increasingly involved in sustainable investing.
“I think ESG investing is in the process of becoming mainstream in Asia,” says Fan. “An increasing number of institutional and private investors are starting to incorporate ESG factors in their investment process.
“Government pension funds in Asia are really taking the lead. Japan’s Government Pension Investment Fund, the world’s largest with USD1.3 trillion assets under management, decided to raise its allocation of ESG investments to 10 per cent of its equity holdings, up from 3 per cent in July 2017. We also see a similar trend in places like South Korea and Taiwan. Their national pension funds set aside specific funding for ESG investing because they recognise the merit of ESG investments in generating long-term, sustainable financial returns. This development also sets standards of best practices for private pension funds as ESG investing goes mainstream in the region and is no longer a niche investment.”
See also: To Borneo And Back: How HSBC Is Nurturing Sustainable Business Practices