Climate change, particularly the need to build up the world's resilience to its effects, has become a crucial topic during Covid-19. The pandemic was a catalyst for the biggest economic recession since World War II, and has caused decision makers to prioritise a more sustainable approach to investment.
According to new research, Southeast Asian investors are responding more than their counterparts in the rest of the world to the need to take sustainability seriously.
Schroders' Global Investor Study 2021 — which surveyed nearly 24,000 people in 33 locations globally including Singapore, Malaysia, Thailand and Indonesia — has found that 67% and 66% of Southeast Asian investors are now placing greater importance on social and environmental issues respectively versus the global averages of 57% and 55%.
The study also revealed that a majority of investors in the region are happy to embrace sustainability, with 67% of Southeast Asian investors feeling positive about moving to an entirely sustainable portfolio.
“Delving into their specific reasons, 62% of Southeast Asian investors said the environmental impact of investing sustainably was the most appealing factor, ahead of 48% who cited having greater chances of higher returns and 43% who believe it’s aligned with their societal principles,” Mervyn Tang, head of sustainability strategy, APAC, Schroders told AsianInvestor.
CALLS FOR DATA AND EVIDENCE
Despite the positive global support for sustainable investment portfolios, when it comes to individual investments, Asian investors still look to their bottom line. The study showed that Southeast Asia investors want to see evidence of higher returns on sustainable investments more than their global counterparts, before putting their money into them.
“67% of investors in Southeast Asia would be more encouraged to increase their sustainable investments if presented with data or evidence that shows it delivers better returns, more than other factors such as reporting of its impact on society and planet, or certification and third-party labels. This figure is even higher than the global average of 53%,” said Tang.
Other research by St. James's Place Wealth Management published earlier this year— which surveyed 2,017 investors in Hong Kong (1,012) and Singapore (1,005) — showed that although two-thirds of respondents were more motivated to invest responsibly since the onset of Covid-19 there are still many longstanding barriers in place. Of the study’s participants, 54% believed that they would have to compromise on returns in order to invest responsibly said Angelina Lai, CEO, St. James's Place Hong Kong and head of Asia investments.
However, Lai sees this concern as an outdated mindset: “It is critical to build on this momentum and bridge the intention-action gap with credible financial advice. Closing this gap will require investment advisers to have the necessary skills and understanding of integrating ESG considerations with the long-term interests of clients,” Lai told AsianInvestor.
Andy Howard, global head of sustainable investments at Schroders said that investors also have major concerns around “greenwashing”, where investments are badged as green but do not live up to this credential on close investigation.
“Our Schroders Institutional Investor Study conducted earlier this year found that greenwashing has been cited as a key concern for the second consecutive year when investing in sustainable investments, while six in ten investors are concerned due to a lack of clear, agreed definitions on what sustainable investment is,” Howard told AsianInvestor.
EXPECTATIONS ON ASSET MANAGERS
Schroder’s findings have highlighted the growing expectations investors are placing on asset managers to address climate change which the global pandemic has exacerbated.
“The COVID-19 pandemic has been a wake-up call in so many ways. In one sense it has been a huge distraction, but it has also served to highlight the inherent fragility of our existence. If ever there was a time for the investment industry to stand up and be counted, this is it,” Vishal Hindocha, global head of sustainability strategy at MFS Investments told AsianInvestor.
“Our clients appoint us as fiduciaries to help them achieve their investment objectives over the long term. Generally, our clients’ objective is to maximise the financial return of their portfolio within appropriate risk parameters.”
Olivier Ménard, head of the green & sustainable hub, Asia Pacific at Natixis Corporate and Investment Banking highlighted that retail clients are not only looking to invest for outperformance but are also looking for positive impact in line with the UN’s Sustainable Development Goals.
“Strong policy support in favour of ESG has played a major role in shaping the right market dynamics for ESG Investments to grow. However, there is a still growing emphasis for more clarity on ESG definitions, targets and impact reporting,” said Ménard in an email to AsianInvestor.