Active Management and Sustainability Key to Navigating Investment Challenges in the Age of #TheZero
In the opening session of Schroders’ flagship investment conference for clients in the Asia Pacific region#, Sebastian Wood, Chairman of Schroders China led a panel discussion with Schroders’ Johanna Kyrklund, CIO and Head of Multi-Asset and Hannah Simons, Head of Sustainability Strategy, together with two distinguished guests – James Cheo, Chief Investment Officer, Southeast Asia, Private Banking and Wealth Management, HSBC and Tan Sri Andrew Sheng, Former Central Banker for Hong Kong Monetary Authority and Bank Negara Malaysia – to explore how investors can solve the problem of #TheZero when looking across the investment landscape, and the role of active management and sustainability can play in the search for returns.
The panellists also set the scene for the rest of the two-day conference, ‘Solving the Problem of #TheZero: Present and Future’, highlighting the forces and solutions that can help investors navigate a world of very low global interest rates and the transition to net zero emissions.
Tan Sri Andrew Sheng, Former Central Banker for Hong Kong Monetary Authority and Bank Negara Malaysia, commented:
“Last year, central banks around the world expanded their balance sheets by US$9 trillion to a total of US$40 trillion to help cushion the financial and economic impact of the Covid-19 pandemic. This has kept interest rates at ultra-low levels and has prompted investors to look beyond traditional investments for returns.”
Johanna Kyrklund, Chief Investment Officer and Global Head of Multi-Asset Investment, commented:
“As the low interest rate environment and rising inflation expectations persist, a multi-asset investment approach can help investors move up the risk curve in a risk-controlled manner. The way to protect against these risks is by having allocations that benefit from this growth environment and have the optionality in place when inflation accelerates.
“A good example is private assets which could attract returns for investors’ portfolios, and benefit from the ability to manage assets that could influence developments much more than you can in public markets. We are also seeing opportunities in thematic strategies across areas of disruption and innovation themes.”
James Cheo, Chief Investment Officer, Southeast Asia, Private Banking and Wealth Management, HSBC commented:
“Inflation is expected to be particularly volatile due to the reopening of economies and the strong demand for goods and services that would typically follow. However, the global economic recovery will be more staggered as countries recover at different paces, leading to a potential drop in correlation between different assets. This means active management will likely play a more important role in the search for returns in the post-pandemic world. “
Looking ahead to the rest of 2021 and beyond, the panellists all agreed that sustainability will be a core focus in navigating #TheZero environment.
Hannah Simons, Head of Sustainability Strategy, commented:
“The United Nations suggests that each year until 2030, around US$5 trillion needs to be invested in new technologies and industries in order to achieve the 17 Sustainable Development Goals (SDGs). In addition, regulations regarding sustainability have gathered momentum, and in Asia, both the Singapore and Hong Kong authorities have been consulting on their own taxonomy including climate regulations.
“Clearly, this will present huge opportunities and risks for companies, and how we identify those companies will be critical. As we move into a new era for asset management, it is important to look beyond the traditional risk and return spectrum to assess the impact that our investments have on people and the planet.
“At Schroders, we have embedded sustainability into our investment processes. We utilise a range of proprietary tools to assess and better understand the risks and opportunities that come from sustainability, enabling us to identify companies that can benefit and transition to become more sustainable.”
Tan Sri Andrew Sheng added:
“Long-term financing is required to fulfil the United Nations’ SDGs, yet most of the money created by central banks were for the short end of the market. There is difficulty in scaling up the financial system to transfer that money, especially to on-the-ground sustainability projects. One key issue is that there are currently no standardised frameworks around ESG accounting and disclosure standards.”
Johanna Kyrklund added:
“With governmental and regulation policies continuing to progress, we recognise the importance of assessing the environmental and social risks that our investments may have. We’ve developed in-house tools to assess all these risks as we are committed to delivering better returns for our clients, and this gives us the ability to identify the most relevant opportunities and outperform the competition.”
James Cheo added:
“There is an opportunity for investors to incorporate ESG factors into fundamental analysis in their search for alpha, as the impact of climate change may not be fully priced into assets. Shareholder activism can also help shape the ESG agenda for companies and unleash further value. “
Hannah Simons concluded:
“What the future holds is the idea of moving beyond ambition and into action, and delivering on the commitments we have made. Being transparent is key, and that is at the heart of Schroders. We bring our clients on our journey to active ownership by sharing with them how we engage with companies in order to enable their transition to a more sustainable future. In the years to come, we'll look back and realize the significance of the actions that we have taken.”
#On 29 and 30 June 2021, Schroders engaged financial industry professionals and business leaders at its flagship investment conference for clients across Asia Pacific to discuss the potential levers investors can pull to drive sustainable investments in #TheZero environment – whether it is in the interest rate policy, return on traditional income investments, the rising urgency to reach net zero emissions, or in a world where zero action means zero results.
A diverse line-up of thought leaders discussed a range of topics, from the role that policy makers and investment managers play, to exploring new investment themes and solutions that have opened up for investors in the dynamic age of #TheZero, with a particular focus on private markets, income investing, China, thematic investing, energy transition and climate change.
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