The sustainable rise of sustainable investing

Consumers are now embracing a green lifestyle more than ever; it’s not uncommon to see a friend switching to a plant-based diet or supporting sustainable lifestyle brands. While the mindset shift is in the right direction, the real power lies in where they invest. Ultimately, consumer demand for sustainable finance services and products will force financial institutions to meet these expectations, fueling a revolution of sorts that will be impactful on businesses, investments, policies and eventually, the environment.

A recent HSBC survey shows that 80 per cent of investors in Singapore rate sustainable and environmental issues as very important when managing their investments². It’s clear then, that consumers and businesses understand the importance of being sustainable and investing accordingly.

In parallel, consumers are increasingly demanding more compelling environmental, social, and governance (ESG) plans and a path to net-zero carbon emissions.

So, expectations are rising and in tandem, global regulations are expanding. What should people know about sustainable investing and how can banks pave the way?

Growing interest in the public

According to a McKinsey report, more than one-quarter of assets under management globally are now being invested based on how ESG factors affect a company’s performance and market value³.

Investors, especially younger ones, want to invest in companies that take climate risks into consideration, and that are sustainable and socially responsible. Last year in Singapore, a HSBC survey found that nearly 50 per cent of Singaporeans (mass-affluent and high-net-worth investors) expect their portfolios to comprise 100 per cent sustainable investments in the next 3 to 5 years.

Awareness of ESG factors also is making consumers product conscious. Transparency and sustainability increasingly influence customer loyalty, especially amongst millennials⁴. Companies with strong ESG propositions are more likely to acquire new customer segments as the world switches gears towards a greener mindset.

This ESG consciousness also has benefited public works and infrastructure. In March this year, the Housing Development Board successfully raised S$1 billion through the public issuance of an inaugural green bond⁵, marking its first step into green finance transactions.

People are realising the real consequences of climate change on businesses and communities. They are using their money to make their voices heard, through the brands they buy or in their investments.

Banking investors and standards on the net-zero journey

Banks support this growing interest and desire for sustainable investing by lending their expertise to businesses making the transition to a low-or no-carbon emissions state. Not only do they influence corporate behavior by providing and channeling finance needed to spark a transition to sustainable business models, solutions and products, banks are pivotal to creating more and better ESG-centric products for consumers and investors.

However, as sustainable investing becomes more pronounced, so has the discussion over accountability and whether businesses are genuinely effecting change. It is prudent for investors to perform their due diligence, look beyond the labels, and shortlist financial institutions backed with proven track-records and strong frameworks that incorporate ESG issues throughout the investment process.

Banks are also involved in rolling out net zero implementation strategies. For example, HSBC has committed to phase out the financing of coal-fired power and thermal coal mining by 2030 in the European Union, and by 2040 in other markets⁶.

Moody’s Investors Service⁷ noted that banks in Southeast Asia are at varying levels of readiness to meet carbon neutrality goals, with some reporting it difficult to incorporate climate risks in their loan underwriting due to insufficient data and disclosures and a lack of common standards.

A common standard will allow investors and asset managers to understand at a glance the impact of their portfolio on the environment. ASEAN governments are currently unifying work spearheaded by countries like Singapore and Malaysia into a single coherent document⁸. The Hong Kong Monetary Authority’s Centre for Green and Sustainable Finance also is working on a set of standards⁹.

The creation of commonly accepted standards will further facilitate the development of green bond markets. Significant investment from the public and private sectors also helps boost sustainable economic development, and funds companies committed to change.

It’s important to note that while banks are supporting businesses and creating standards, governments, regulators and the public must simultaneously keep the momentum going if we’re to tap into the full potential of financial markets.

The final analysis

John F. Kennedy once said that “in the final analysis, our most common link is that we all inhabit this small planet. We all breathe the same air. We all cherish our children’s future.” His words are so relevant today.

If we want to create a better world for our children, a net zero world that’s made our shared air more breathable, then we must keep up the pressure for ESG solutions that lower emissions. The finance industry must continue to widen and deepen product offerings in the sustainability space. And consequently, banks must offer transparency and access to more sophisticated ESG frameworks.

We all live on this on this small planet. Let’s make sure our investments keep it blue and green for our children.

Read other articles in this series:

• Realising Singapore’s ambition to become a Little Green Dot
• Climate talk will be replaced by action in 2022