ESG allocations surge as next generation takes over Hong Kong’s family offices
Hong Kong family offices stepped up their appetite for environmental, social and governance (ESG)-focused investments in 2021, according to a recent survey by the Family Office Association Hong Kong (FOAHK).
Eighty per cent of respondents said they allocated assets to ESG or impact investing in 2021, and 85% plan to ramp up their allocations this year.
FOAHK chairman Chi Man Kwan told AsianInvestor he wasn't surprised that the momentum towards sustainable and impactful investment is continuing, as younger generations are preparing to play a more significant role in what their families invest in.
“Over the next 10 years in Asia about $17 trillion in assets, by some statistics, are going to pass on from one generation to the next, and the younger generation generally have a much greater sense of responsibility for meaningful and impactful investment,” said Kwan.
“The next generation are really playing a very pivotal role in the family's fortune in a way that corresponds to their identity and inspirations. As they take over in the coming years, and even decades, they are looking to create a tangible and positive impact on society with these investments.”
TALENTED FAMILIES
According to the FOAHK survey, the second highest priority for family offices in 2022— after investments — is family governance (52%), which Kwan says indicates that these investors recognise they need to assemble the right professionals to accomplish their goals.
“Family offices in Asia are generally managed by family members, but there could be a talent gap in the governance,” said Kwan. “These offices need to evolve and diversify, and they have come to recognise the necessity for a clear strategy, sound governance and infrastructures, and the efficient execution of the operations. So this gap can only be filled by bespoke and professional management and the right talent.”
Kwan believes that family offices in Hong Kong find it challenging to hire the right talent with passion and a thorough understanding of their purpose and operations. In particular, talented ESG specialists are thin on the ground.
“A well-functioning ESG ecosystem requires certain knowledge, skills and mindset, to integrate and deliver on ESG goals, so family offices are always on the lookout for these talents. At the same time, this pool of talent is quite lean in Hong Kong.”
FRAMEWORK LACKING
Investors looking to allocate assets to ESG investments often bemoan the lack of consistent standards and reporting within the sustainable investment sector generally.
For this reason, one veteran Hong Kong family office investor was hesitant to say his firm has an ESG allocation but affirms it does invest within parameters that will bear a positive social impact.
“We definitely are investing in what could be deemed ESG sectors such as environment tech, healthcare, education, financial inclusion, but I think it's hard to exactly define,” he told AsianInvestor.
“There’s no framework that people follow on a universal basis, because there's so many different standards that different organisations have put up, and many of them have their own guidelines.”
The standards for ESG ratings and guidelines for investment can differ depending on the organisation and region, and the trend towards sustainability has been plagued with reports of greenwashing — emphasising the need for thorough due diligence when investors seek out these types of investments.
“I think the lack of standardised ESG guidelines is a general industry phenomenon right now and there isn’t a one size that fits all kind of situation,” the veteran family office investor said. “For now our priority is to invest in sectors that we know will make an impact on society.”