Schroders Institutional Investor Study 2021: Hong Kong investors focus on higher returns through impact and thematic investments
As the Covid-19 crisis sharpens the focus on sustainable investment, global investors are starting to move away from ‘having’ to invest sustainably towards ‘wanting’ to make an impact with their investments. While motivating factors for investors worldwide may vary, in Hong Kong, 67% of institutional investors still viewed higher potential returns as the key driver, according to the Schroders Institutional Investor Study 2021.
Schroders’ flagship annual institutional study, first launched in 2017, encompasses 750 investors and USD$26.8 trillion in assets across 26 locations globally.
The Study revealed that impact investing was ranked by 75% of surveyed Hong Kong investors as one of their top three approaches to investing sustainability, out of six options provided. Thematic investing was the next most preferred approach (65%), rising above ESG integration (60%) and negative screening (60%) methods this year. Funds with specific sustainability goals such as attention to environmental issues (54%) or health and wellness (50%) were found to be their go-to choices apart from those with a broad sustainability focus (54%).
These findings are a stark contrast when compared against the Asia region as a whole, where impact investing and thematic investing only made the top three preferences of 38% and 43% of the surveyed investors respectively.
The interest seen in impact and thematic investing has unsurprisingly come hand in hand with these Hong Kong investors’ stewardship actions, where many have paid more attention to topics which were most relevant to their sustainable investment approaches. For instance, 71% of Hong Kong institutional investors believe that engaging on environmental issues such as climate change or the use of fossil fuels is one of the most important aspects. However, challenges remain in the rear-view mirror.
Unlike global institutional investors who found greenwashing (59%) as their most common concern, nearly 80% of investors in Hong Kong harboured doubts about the ability to measure and manage risk when investing sustainably. 63% felt a lack of transparency and reported data was a challenge, which can be attributed to the number of investors who also said they would regard improvement in this aspect a form of ‘successful’ engagement (71%).
Mervyn Tang, Head of Sustainability Strategy, APAC, Schroders, commented:
“Concerns around sustainability measurement are particular evident in Hong Kong and highlights that, as an industry, we still have a long way to go to make investors feel confident that they have all the tools and information to make informed decisions. This is also why Schroders has developed impactIQ to help investors quantify the sustainability risks and impacts of assets they seek to invest in. The intelligence is also an invaluable resource for the formation of our investment solutions that are tailored to meet investors’ sustainability needs.”
Interestingly, 62.5% of respondents said there has been little or no impact on how they perceived sustainable investments following the pandemic, whilst the remaining respondents all said they had taken a greater interest in the sector since the outbreak. This could hint that many investors in the market were already accustomed to sustainable investment before the unprecedented global crisis hit.
When polled about what could dampen the performance of their portfolios in the next 12 months, 79% of Hong Kong institutional investors believed that the impact of geopolitical risks may play a greater role in the future, whilst the vast majority of respondents (96%) also expected currency risk to have a moderate impact on their returns.
Even with other potential headwinds such as negative and/or ultra-low interest rates and the tapering of monetary policy – concerns shared by 46% and 25% of the surveyed Hong Kong respondents respectively – many still had high hopes on their annual total return. In fact, they were a lot more aggressive than their peers, with close to one-third of respondents estimating their investment return to exceed 9% p.a. in the next five years when only 13% of investors globally expected the same kind of return.
Keith Wade, Schroders Chief Economist, commented:
“The improvement in global growth prospects is clearly having an influence and investors are beginning to get concerned about a withdrawal of liquidity through a tapering of monetary policy. This probably reflects fears about inflation, although ultra-low interest rates are expected to persist.
“Other rising influences are regulation and climate change, no doubt reflecting the agenda of the new Biden administration, as well as moves by China and the European Union.”
About Schroders Institutional Investor Study:
Schroders commissioned CoreData to conduct the fifth Institutional Investor Study to analyse the world’s largest investors’ key areas of focus and concern including the macroeconomic and geopolitical climate, return expectations, asset allocation and attitudes to private assets and sustainable investing.
The respondent pool represents a spectrum of institutions, including pension plans, insurance companies, sovereign wealth funds, endowments and foundations collectively responsible for $26.8 trillion in assets. The research was carried out via an extensive global survey during February and March 2021. The 750 institutional respondents were split as follows: 204 in North America, 275 in Europe (including UK and South Africa), 205 in Asia Pacific and 66 in Latin America. Respondents were sourced from 26 different locations.
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