The growth of green bond market is spreading. The latest attention is the Hong Kong financial community, as the Hong Kong Financial Services Development Council suggests new initiatives be adopted to enhance green investing. In the words of Jessica Robinson, head of Asia (ex-Japan) at United Nations-supported Principles for Responsible Investment, the regional investment needs for green bonds are huge as very large sums of international capital are urgently needed for Asia to make the transition from a brown economy to a green economy: “The regional green bond market will be at the heart of delivering this capital and is likely to grow rapidly once the necessary infrastructure and market confidence is in place.”
Category Archives: Impact Investing
Asia Sustainable Investment is Growing
Investors and financial services professionals in Asia are increasingly turning their attention onto sustainable and responsible investments.
The Association for Sustainable & Responsible Investment in Asia (ASrIA) has released its 2014 Asia Sustainable Investment Review, as a focused study on the current state of Asia’s sustainable investment strategies. Based on survey responses from investors and managers as well as industry data and trend analysis, the results reveal a sizeable amount of assets, standing at US$44.9 billion (as at 31 December 2013), that are managed with sustainable investment principles. Although the figure is relatively small against the broader market and total Asia assets-under-management, the sector looks to be growing, averaging annual increase of 22% since 2011.
Founded in 2001, ASrIA is an association dedicated to acting as a thought leader, convenor and advocate to promote the development of sustainable financial markets and systems in Asia. Its primary initiative is on climate change, with the aim to foster economic growth and poverty alleviation in Asia while managing environmental impact through efforts for green and low-carbon economy.
According to ASrIA, the 2014 report shows that targeted investments to tackle environment challenges are growing in importance, and the integration of environmental, social and governance (ESG) factors is the most commonly adopted sustainable investment strategy, at US$23.4 billion or 52% of all assets managed with sustainability in mind. 66.7% of the respondents indicated that ESG ratings are systematically included in their standard financial analysis (rather than peripherally), and this is commonly applied in listed equities and private equity investments, but less so in fixed income or real estate.
The use of negative or exclusion screenings amount to 37% of sustainable investment assets, with islamic funds being a significant contributor to this category. Among the 11 key countries covered in the report (including China, India, South Korea and Taiwan), Malaysia scores strongly as the largest market for sustainable investments because of its position as a well-established centre of islamic funds.
The number of sustainable investment funds grew from just over 400 in 2011 to a total of 500 funds by the end of 2013. Over this period, there has been a growth in use of strategies across integration, negative/exclusion screening and sustainability themed investing, but a slight decrease in positive/best-in-class screening. Corporate engagement and shareholder action now also measures as a significant approach to sustainable investing.
Investors may use a combination of strategies, as the report suggests. Looking forward, four emerging sustainable investment themes of clean energy, green bonds, conversation finance and impact investing are expected to become more relevant and important for the Asia investment industry, as the trend suggests investors are beginning to care more holistically about sustainability issues. However, financial considerations remain to be a key motivation, even as regard the adoption of sustainable strategies.
Finally, the area of sustainability disclosures has been identified as both a place of positive development and an ongoing challenge. A number of key financial markets such as Hong Kong, Singapore and Shanghai have adopted or are adopting disclosure requirements on sustainable policies of listed companies, but the development of consistent standards for disclosure will be key.
“Asia is a region full of contrasts: home to some of the wealthiest individuals, it also shelters some of the poorest nations. Financial markets and their actors are often accused of being part of the problem, and yet this is an opportunity for Asia’s financial markets to be part of the solution. We are seeing positive trends in areas such as clean energy investment and increasing interest in green bonds – pointing to a dynamic market with huge potential.”
– ASrIA CEO, Jessica Robinson
New Age Wealth Management
The investment world is fast evolving. Ten years ago, structured finance and hedge funds were the rage. Today, hedge funds are increasingly becoming mainstream, along with alternative strategies of private equity and real estate investments, while structured finance, with securitisation and instruments of mortgage-backed securities, has borne a taint of shame with the implosions in the global financial crisis of this decade past.
The GFC has changed the landscape and the mindset. From regulators in capitals of the world to investors on the street, the attitudes towards financial institutions and financial products are markedly different from before.
The results – firstly, savvy investors are trending towards a greater emphasis of diversification across a full spectrum of asset classes, and the spectrum keeps getting stretched. In an economic environment of low returns on traditional assets of stocks and bonds, coupled with inflation worries stemmed from prolonged quantitative easing in most key markets, investors continue to seek out new investments that could offer higher returns and lowest correlation.
However, beyond this approach which is still based on the age-old modern portfolio theory of diversification, investors are taking a more holistic look at their wealth management strategies. As investors get increasingly well-educated and sophisticated, there is a continuing greater expectation for specialist knowledge and expertise that comes through in the financial services available and provided. With this, there is a demand for higher level of customisation of products and services that meet investors’ unique needs and circumstances. Investors today have a better idea of what they would like to have or see in their asset portfolio or returns, and many wish to play a more proactive and leading role in structuring investment solutions that appeal to their appetite, rather than just as passive recipients of advice and recommendations.
Yet, what is most exciting and positive is that more investors are looking to apply their investment capital towards social good. According to the results from a survey conducted by Capgemini and RBC Wealth Asset Management in 2013, as high as 92% of around 4,500 high net worth individuals in 23 countries indicated that having social impact is important to them. For high net worth individuals under 40 years old, more than 75% view this as extremely important.
There is therefore demand, and significant growth potential, for investment and wealth management professionals to rise to meet such needs and challenges.
For example, investment banking giant Morgan Stanley is putting more focus now than ever before on its wealth management division. The draw of wealth management opportunities has prompted financial institutions to shore up capability and team in the sector. However, it isn’t an equation of simply transferring people and resources from the sell side to the buy side, as the wealth management team will need to do more than analysing and deciding which stocks or bonds to buy or to recommend to clients. Such traditional advisory business is already fairly established for some time. Some may actually be experiencing loss of assets as clients now seek different service experience or wider product offerings from alternative providers or platforms.
Instead, the shift presents two major approaches that should be explored – developing wealth management advisory tools and platform that would offer high net worth individuals and wealth management clients the ability and convenience to proactively engage with and manage their investments and portfolio, and, establishing capability and resources that would assist and provide client investors with the knowledge and means for making social impact with their investment capital.
Once upon a time, not too long ago, social responsibility investing may only take a backseat or invite a ridiculed look. Today, it comes up more frequently and may increasingly become a key criteria or part of an investment portfolio.
BofA Merrill Lynch has launched a “Green Bond Index”, to track the performance of some US$32.3 billion in value of “green bonds” issued by some 29 quasi-governments and corporates, to-date, that fund climate or environmental sustainability projects. “Green bonds” have seen multi-fold growth in 2013 and 2014, and is expected to continue growing in number of issuance and types of issuers. Indices such as this afford investors the means of analysing and tracking the available opportunities and the financial risk-return profile of green investing.
According to Rockefeller Foundation, impact investing will continue to grow in Asia. Assets-under-management in Asia Pacific are estimated to exceed US$16 trillion by 2020, and impact investing would likely and hopefully be a big part of that.
More Desire for Good
As high as 92% of around 4,500 high net worth individuals in 23 countries indicated that having social impact is important to them. For high net worth individuals under 40 years old, more than 75% view this as extremely important.
Such encouraging results from the survey conducted by Capgemini and RBC Wealth Asset Management in 2013 shows that the world is on the cusp of potential transformational changes, if the widely shared desire for good can be translated into real positive action and impact.
Global Cities of Power
Hong Kong and Singapore are expected to rank just after New York and London, as centres of wealth, knowledge, power and influence for the world, by 2024. The Wealth Report 2014, published by Knight Frank and Wealth Insight, referred to these cities as “Global Cities of Power”, with Shanghai and Beijing also projected to be in the Top 10. The others are Dubai, Miami, Geneva and Mumbai.
As the two major Asian financial centres, Hong Kong and Singapore are already key centres for financial markets, financial services and wealth management.
“To whom much is given, much is expected”, as an old saying goes. Becoming a “Global City of Power” does not involve just a measure of wealth, but also implications of growing knowledge and power base, with the ability to influence and shape world development.
It is important to then ask, in the realm of social responsibility, impact investing and directing wealth towards philanthropy and social giving, whether these cities are also witnessing significant interest and establishing infrastructure towards funding the social good?
Similarly, with Shanghai and Beijing, leading China in becoming the world’s Number One economy, as well as Mumbai with respect to India’s impressive economic story, the development of social responsible framework and focus on sustainable growth are key areas. While New York, London, Miami and Geneva are developed economies, with more established practices for social responsibility, the new and emerging economies may have more to learn from the developing countries in embracing sustainable development in terms of shared or common experiences.
Watch the movers and shakers.
Imtrove 