Hong Kong investors not walking the talk in sustainability investing, finds Schroders Global Investor Study 2017
The Schroders Global Investor Study 2017, which surveyed over 22,000 investors across 30 markets, has found that Hong Kong investors recognise the growing importance of sustainable investing. However, they are lagging behind their global and Asia peers in ESG adoption and sustainability behaviour, which likely reflects the lack of understanding and challenges they may have with sustainable investing.
The majority (84%) of Hong Kong retail investors felt sustainable investing is more important to them now compared to five years ago, which is higher than their global (78%) and Asia (80%) peers. Over half (55%) of them said they have increased their sustainable investments over the same period, which is lower than their global (64%) and Asia (68%) counterparts. Whilst 25% of Hong Kong retail investors say they always or often invest in sustainable funds rather than those that don't consider sustainability factors, the percentage is relatively low compared to their global (42%) and Asia (45%) peers.
On the other hand, 64% of Hong Kong institutional investors expect sustainable investment to be more important in the next five years – slightly lower than their global peers (67%) and higher than their Asia counterparts (59%) – and only 7% of them increased their sustainable investments over the past five years, much lower than the global figure of 48% and Asia’s 33%.
Chris Durack, CEO of Schroders Hong Kong, said:
“The increasing preference globally on sustainable investment reflects that this topic is becoming more important to investors. Despite growing awareness, Hong Kong investors may still have some way to go in fully understanding and adopting sustainable investments to ensure they meet their long term investment objectives.”
Hong Kong retail investors generally exhibit sustainable behaviours, but the survey showed they lag behind their global and Asia peers on taking action.
For Hong Kong institutional investors, 83% of respondents find sustainable investing to be a challenge – similar to peers in Asia (82%) and higher than those globally (77%). The top three challenges they find are:
Schroders believes sustainable investing should also become a form of sustainable behaviour that comes naturally as investors become more ESG conscious. If investors build ESG factors into the entire investment portfolio, the investments they make could instigate or influence the social and environmental change they wish to see, whilst still progressing towards their long-term financial goals.
Chris Durack continued:
“Sustainable investing is not just about focusing on green funds. Schroders believes funds that incorporate ESG factors into the investment process are better positioned to help investors create real long-term value. ESG provides us with tools to evaluate the future and helps us assess which companies are best placed to navigate that. We can focus on identifying sustainably managed businesses, understanding the risks and opportunities of environmental and social change, and actively engaging to improve companies’ behaviours and governance. ESG investing is complex in nature, and an active approach is needed to capture the full benefits of it.”
Choosing an asset manager with in-depth ESG investing experience can be a way for investors to navigate through the complexity. Schroders, which has over 20 years of experience in firm wide ESG integration, embeds sustainability factors into its investment process, and have developed stringent reporting and measurement models to ensure transparency and achieve long-term investment and positive impact objectives.
Why should people allocate more to sustainable investing?
Responsible investing can be a good tool for managing risk, safeguarding investments and generating alpha. Over the years of its ESG investing experience, Schroders has noticed that companies with good ESG practices tend to be more resilient operationally and could generate strong corporate earnings. Whilst some used to believe investing in positive impact is at the expense of profits, this is proving to be a dated view. The survey echoed Schroders’ belief and showed that investors see sustainable investing as a way to not only drive societal, social and environmental change but also generate profits.
When asked whether they invested, or would invest, in sustainable funds for the potential profit or positive impact, Hong Kong retail investors felt profit is more important for most types of funds, such as:
- Funds focused on improving diversity 41% vs 20% (profitability vs positive impact)
- Funds focused on corporate governance 41% vs 22% (profitability vs positive impact)
- Funds that invest in medical science and biotechnology 39% vs 27% (profitability vs positive impact)
- Funds that avoid oil, gas or coal companies 32% vs 26% (profitability vs positive impact)
The two types of funds that scored higher on positive impact over profit are:
- Positive social impact funds such as human rights, poverty and social welfare 38% vs 21% (positive impact vs profitability)
- Funds that invest in green technologies 40% vs 28% (positive impact vs profitability)
Jessica Ground, Global Head of Stewardship at Schroders, said:
“While profitability remains the central investment consideration, interest in sustainability is increasing. But investors also see sustainability and profits as intertwined. They are looking to allocate to companies that are successfully navigating social and environmental change to generate profit and impact. Investors understand the impact that issues such as strong corporate governance and diversity can have in generating profits - views that are backed up by the research. Social and environmental change is happening faster than ever. The challenges posed by climate change, inequality and demographics are sizeable. Our Study shows that investors are willing to play a role and value the impact that investments in green technology and social impact can have.“
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