The surge of enthusiasm for ESG investing in Asia during the past year has been especially significant, with the coronavirus acting as a catalyst for accelerating momentum.
“However, the speed of the adoption of sustainability, and other responsible, social and governance factors in investment processes means there are fundamental differences in its trajectory compared with Europe,” Fabrice Chemouny, head of Asia Pacific at Natixis Investment Managers, told FSA.
ESG has been a theme in various manifestations in Europe for several decades – Paris-based -Natixis launched its first “socially-aware” fund 35-years ago – and governments and other political bodies led the drive for more responsible investing.
They had most clout among public pension funds, and were able in many cases to insist successively that their managers integrated environmental or social issues into their decision making.
Meanwhile, individual investors were generally resistant.
“Self-interest predominated, as they needed to be confident that they wouldn’t sacrifice returns by taking into account non-financial factors. Investing and philanthropy (or doing good) were typically discrete categories,” said Chemouny.
“However, the recent strong track record of funds, explicitly designated as ESG-focussed, showed them that ESG integration actually enhanced returns as well as reducing risks,” he said.
As a result, Asian investors are approaching ESG investment from a different starting point, and adopting it faster: they are already aware of performance potential, and for them there is no dichotomy between “value and values”, according to Chemouny.
“Perhaps surprisingly, private banks have shown strong interest in ESG funds, with substantial inflows since last summer. Much of the impetus has come from their wealthy end-investors,” said Chemouny.
Indeed, more financial institutions and individual investors throughout the world are deploying a broader range of ESG strategies to meet rising demand for more sustainable investments, according to survey findings released last month by Natixis Investment Managers.
“We know from the results of the survey that environmental factors and investing are no longer on the fringe but have taken centre stage,” said Chemouny.
Approximately three-quarters of professional investors, including 72% of institutional investors and 77% of the gatekeepers who select funds for their firm’s investment advisory platform, are now implementing ESG, up from 61% and 65%, respectively, since 2018.
The pace of growth accelerated in 2020, amid record inflows into ESG funds and an unprecedented number of ESG product launches. This year, 68% of professional fund selectors plan to further expand their firm’s ESG offerings, according to the survey.
Their main reason for doing so is because of investor demand, which fund selectors believe stems from investors’ heightened social awareness (75%) and the fact that ESG investing has now reached critical mass among mainstream investors (50%). Other factors that are driving demand for ESG include investors’ desire to be part of the green economy (42%) and concerns about climate change (36%).
Three-quarters of individual investors (77%) previously surveyed by Natixis said it is important that their investments and values are aligned. Moreover, what investors say they want most out of a relationship with a professional advisor is to have them identify investments that match their personal values.
In Hong Kong, there are a significant number of investors who want to make financial decisions based on their personal values (87%) and industry professionals report that clients are expressing a growing interest in ESG investing (16%), reflecting a desire that investments produce not only a financial return but a positive impact.
From his long experience in a region marked by extreme climatic and geological events, Hong Kong-based Chemouny believes that people in Asia are particularly sensitive to the “perils of nature”.
“They want to protect their physical environment and their living space,” he said.
At the same time, regulators in the region — especially in the wealth management centres of Hong Kong and Singapore – have prioritised sustainable and responsible investing practices. State-owned institutions often have followed their lead by allocating assets to ESG-compliant funds.