The past year has been one like no other. The outbreak of the pandemic has caused people to re-think the way they live, work and invest.
According to a recent HSBC Asset Management’s Sustainable Investing survey1, conducted with 250 investors and 400 advisors in four locations: Hong Kong, mainland China, Singapore and United Kingdom, 68% of investors in Singapore said that the pandemic has raised their awareness of the importance of environmental, social and governance (ESG) considerations. In fact, almost half of the investors surveyed believe that their portfolio will be 100% in sustainable investments within the next three to five years.
Why is this important? Because where you put your money is a clear indicator of where your priorities are.
The Covid-19 crisis is a significant call to build back a better, more inclusive and sustainable world. There is much to be done to achieve these goals, and as financial institutions, our role is to help clients not only achieve their long-term financial objectives but also contribute to a more sustainable world for future generations.
As asset managers, we are the stewards of people’s savings and investments. And with the recent shifts in mindsets and behaviour, it is becoming increasingly clear that our “dual purpose” of helping people achieve financial performance – which the overwhelming majority of respondents to the survey stated that they do not want to compromise – while channeling capital towards a more sustainable future, are in fact the same objective.
In today’s world, you simply cannot divorce ESG analysis from risk analysis. After all, a company with sustainable practices is also one that will succeed in the long run.
As asset managers, banks, insurers, financial institutions, businesses, investors, and members of society, we have to step up to play our part. The fact is, no one party can do it alone. We need the joint collaboration of businesses, policymakers, and stakeholders to achieve all these goals.
Exclusion used to be the easy way to deal with business partners or issuers whose activities might be incompatible with, say, the goals of the UN compact or the Paris agreement. However, there is now a wide understanding that this does not address the problem constructively. It’s easier to burn bridges than build them, yet where there is no dialogue, it is hard to demand improvement.
As corporations with significant resources to bring to bear, we can be change-makers. Engagement is now the name of the game: we can have meaningful conversations with the corporations that we invest in to foster positive change. This allows us to better understand and evaluate the ESG risks and opportunities at a company level, and encourage better practices.
Developing an understanding of the way in which companies manage their impact on the environment, their relationships with stakeholders, and their operations helps to highlight key ESG risks and opportunities. We can then use our influence as investors to encourage positive behaviour, promote high standards, and ensure that the interests of all stakeholders are considered.
It is important to move forward with corporate partners who may not currently have perfect ESG scores but who are on a journey and help them move in the right direction, for instance, towards a net-zero emissions goal.
We also should be engaging with regulators and industry leaders to support the transition to a low-carbon economy and supporting behaviour change. But that is not all. ESG is rapidly evolving, and the range of opportunities and risks make it even more important to continually engage with and educate our investors and our employees.
Besides engaging with investee companies to boost the sustainability agenda, it’s important that financial institutions also look within and evaluate their own practices. Investment processes should now integrate ESG considerations as much as the other aspects of financial research and analysis. Integration is the new key word. And in fact, practically, integration precedes engagement.
There are three key pillars that are instrumental to providing strong foundations for a robust ESG investment framework. The first is integration, or integrating ESG research within the broad research agenda, in all asset classes, intertwined with old-school (and AI-enhanced) financial analysis, to make better investment decisions.
The second one, already mentioned, is engagement. Thirdly, active ownership is also essential. Voting and engagement helps to protect and ultimately enhance value in the companies and other issuers in which we invest, and increase the climate-resilience of our clients’ investments.
As asset managers, we have a clear role to play. We need to help our stakeholders, our clients, employees, the societies in which we operate, and most importantly, our planet to do well and prosper. Which is why we need to invest with purpose and discipline, as we do.
A contribution piece by Patrice Conxicoeur, CEO and Head of S.E.A., HSBC Asset Management (Singapore) Ltd. A version of this piece was first published in The Straits Times on 24th May 2021.
1Sustainable Investing survey by HSBC Asset Management: The survey, conducted in January and February 2021, was commissioned by HSBC Asset Management to study attitudes towards sustainable investing among mass investors and advisers in Hong Kong, Mainland China, Singapore and the UK.