Social impact investing from a thematic perspective

Environmental, Social and Governance (ESG) has been a crucial element for investors for some time now. The “E” factor is obviously one of the key focuses, with industries such as renewable energy and climate change solutions attracting much attention across markets.

We’ve all heard of green bonds which aims to fund environmentally friendly projects. Hong Kong’s first government green bond was issued in 2021, adding to Asia Pacific green bond market, which was the second most active globally that year¹. As markets evolve, we are starting to see more and more issuances of “social bonds” globally. These social investment assets are often built around meaningful community themes that are intended to address social and economic conditions with access to finance, quality housing, clean energy, education, healthcare and other needs.

The “S” factor attracts investors and regulators

From a regulatory perspective, more and more policymakers are looking at the “S” factor. From an investment perspective, markets are also gradually recognising this force. We believe that social-minded assets can not only bring positive impact to the world, but also improve investor confidence.

In fact, our latest Schroders Global Investor Study 2022 found that around one-third (38%) of Hong Kong investors see sustainable funds as attractive because of their societal principles, second to environmental impact.

We also learned from an impact point of view that Hong Kong investors are primarily focused on human-orientated issues in their investments, including improving health and wellbeing (45%), quality of education (42%), and clean water and sanitation (37%).

Identifying companies that are creating positive social impact

At Schroders, we look for companies that are purposefully contributing positively to people and communities. We have developed a set of analytical tools called impactIQ which help us quantify the sustainability risks and impacts of companies we seek to invest in.

For instance, by understanding how many people have gained access to mobile connectivity, transportation, social housing, or renewable energy as the market capitalisation or revenue of companies increase, we are able to gauge in dollar terms the positive or negative social impact that they create through the way they operate.

Equally important is our regular engagement and meetings with company leaders to help us obtain a clearer picture of whether the companies that we are investing in are managed and operating sustainably. Through these conversations, we actively influence corporate behaviour to encourage sustainable business practices and use our voting rights to drive through these changes.

Trending ESG investment themes

Moving forward, we believe companies that are willing to accommodate social factors are better placed for changes and overcoming challenges such as shortage of workers and suppliers, as well as customer complaints.

Among the trending themes, we see healthcare innovation as one that will attract more attention from investors. Life expectancy in East Asia and the Pacific averaged 76 years in 2020², and Hong Kong has one of the world’s oldest populations at 85 years. Aging populations increase demand for healthcare services, and calls for cheaper yet more innovative and digital solutions have never been greater.

Regardless of where we are in the economic cycle, the need for healthcare remains, making it a defensive sector that is worthwhile to watch in the years to come.

¹ BloombergNEF.

² Life expectancy at birth, total (year) – East Asia & Pacific, World Bank.