AIA, Singlife challenge notion of ESG versus returns
Chunyen Liu, chief investment officer at AIA Singapore, believes the popular view that there must be some sort of a tradeoff between financial returns and sustainable investing is more of a persistent myth plaguing the industry than a valid viewpoint.
“Sustainable investment requires a more holistic view. All we are thinking of, and designing for, in the ESG discipline is to improve the long-term sustainable outcomes of our investment,” Liu told the audience at AsianInvestor’s Insurance Investment Briefing in Singapore on Tuesday.
By investing in companies that prioritise sustainability in their operations, investors are in fact managing downside risk and avoiding future surprises that could lead to drops in share prices. It also makes sense from purely an alpha generation standpoint, said Liu.
“Increasing collaboration with asset managers, regulators, and banks to create solutions that focus on sustainability and impact investing actually brings you Alpha against your generic investments,” she said.
“It really isn’t a struggle for us to balance returns and sustainable investing, you just need to maintain a balanced scorecard.”
“In terms of a balanced scorecard or its strategy setting and measurement, I don’t know if we approach our investments in that way, for us it really starts with returns,” said Kim Rosenkilde, group chief investment officer of Singlife.
However, Rosenkilde explained that the investment industry is now in an era where, for the first time in history, sovereigns are aligning with investor interests who are aligning with the needs of society.
“I think it's a unique opportunity to get the right returns, and that's our fiduciary responsibility,” he said.
“We're custodians and stewards of other people's money and there’s an element where you have to say that it doesn't really make any sense to grow people’s retirement savings [this way] if by the time you retire, we live in a society that's not sustainable. I think as an investor, if that happens then you have not lived up to your fiduciary responsibility.”
There are many different interpretations of the definition of sustainable investing and impact investing, according to Rosenkilde.
“For me, impact can also be buying a ship that transports ammonia from Chile to Singapore in order to benefit from the hydrogen efforts that we're making. [This] is still a brown asset but it makes an impact. So I get confused about the terminology,” he said.
“We're in this a little bit, if I dare say, for the money as well.I think others should just be comfortable saying that.”
ENGAGE, NOT DIVEST
While Europe is touted as being the most advanced economy in terms of sustainability regulation, Ghislain Perisse, head of insurance solutions, Europe, Fidelity International said that there can sometimes be a gap between reality and risk management.
For instance, last year many of the largest insurers chose to divest themselves of mining and oil companies due to the insurers’ commitments to net-zero. However, these were the only sectors that performed last year, Perisse said.
In Europe, new regulation has come in effect that gives pension savers and life insurance contributors more choice and flexibility in product options that their fund invests in.
“The money of the insurers or the pension belongs to the end client, and they have the power to pollute or not pollute,” said Perisse. “It turns out 90% of the end clients in Europe don’t care about climate change.”
Some end clients have even attacked the insurers for reducing their investable universe, which they believe has caused lower returns, he said.
The desires of the end users actually presents a lot of opportunities to engage with corporates rather than divest, said Perisse.
“If we engage, we will benefit from the return and we will help them [change] without aiming to change the process of management within an insurer or an asset manager.”
AsianInvestor will be hosting its Insurance Investment Briefing in Hong Kong on March 10. To find out more, click here.