Perspective - Global Investor Study

The fund industry’s wake-up call: how Hong Kong investors want us to act

Sustainability has gone global. For companies, sustainability is no longer a “nice to have”, it’s an imperative.

06/11/2019

Sustainability has gone global. For companies, sustainability is no longer a “nice to have”, it’s an imperative. That’s if they want to thrive, attract talent, and relate to customers. Ultimately, it’s essential to staying profitable in the long term.

So, has this tectonic shift moved beyond the reusable coffee cup or ubiquitous water bottle to individuals’ finances?  When we sought the answers, the results were more conclusive than we could have imagined. They are a call to action for the entire investment industry.

A global and widespread phenomenon – Hong Kong investors get in on the act

In the Schroders Global Investor Study 2019, we spoke to over 25,000 people globally who intend to invest more than €10,000 (over 100,000 HKD) in the next 12 months, including 500 people in Hong Kong. It was one of the largest surveys we’ve carried out, and across all markets and generations the message was clear. Investors care about sustainability more than ever.

Over half (53%) of Hong Kong investors say they always consider sustainability factors when investing. Similarly, 52% believe their investment choices can make a real difference towards building a more sustainable future and 56% agree that all investment funds should consider sustainability factors not just those specifically designed as "sustainable investment funds".

Perhaps most remarkably, concern isn’t concentrated among the younger generation. In fact, it is Generation X (38-50 years old) who are most likely to be concerned about their investments’ sustainability.

We found 63% of Hong Kong Gen Xers will always consider sustainability factors when selecting an investment product, compared with 49% of millennials. Perhaps the parents of Greta Thunberg’s generation are absorbing her message, concerned for the future of their own children.

Most importantly, these Gen X investors are squarely in the phase of their lives when they are meant to be accumulating savings. For them to worry about how their portfolios will affect the planet suggests a real shift in attitude – possibly a tipping point for us all.

But how do they want us, the investment industry, to act on their behalf?

There’s a growing awareness of how investors want to become sustainable investors. The old world of screening stocks – building a portfolio that leaves out “sin stocks” – is the least popular choice with only 20% of Hong Kong investors favouring it. Most Hong Kong investors now prefer investing in companies that are ahead of the curve in preparing for such changes and are therefore likely to be more profitable (45%), while some prefer investing in companies because they are best-in-class on environmental or social issues (35%).

This shift in attitudes to different investment approaches is important and is, perhaps, underpinned by a growing awareness that sustainability doesn’t mean sacrificing profitability. In fact, quite the opposite.

Historically, those who expressed an interest in sustainable investing were asked: “What don’t you want to invest in?” The result was a fund built from the leftovers, rather than looking for companies that were attractive because they were sustainable.

How can the industry help?

The response to our study indicated that Hong Kong investors believe the whole financial industry could do far more to help them invest sustainably.

Hong Kong investors feel that practical steps, such as regulatory change to encourage sustainable investing (51%), and working towards a set of easy-to-understand sustainability ratings from a trusted independent body (54%) would be most helpful in encouraging them to allocate more of their investment portfolio into sustainable funds.

Investors also want better information on sustainable investments from financial advisers (53%), and for investment managers to use their own in-house ratings to reassure customers that the funds they choose actually are sustainable (49%).

In it for the long term

SustainEx is a tool developed by Schroders that can quantify the social and environmental impacts of each company. It gives us visibility on all of a company’s activities, both positive and negative. This means we can construct portfolios knowing that the companies within them are fit for the long term.

Instead of focusing on a single issue, SustainEx allows us to understand wide-ranging issues from sugar taxes, to water shortages to the impact of online gambling.

The same tool allows us to engage with businesses whose practices are unsustainable, because the investment risks are quantified in dollars. As active managers, we can hold companies to account, ensuring they adapt and improve.

Ultimately, we hope SustainEx will help make every one of our portfolios sustainable.

A sustainability tipping point

We are on the brink of a sustainability tipping point as significant to the global economy as the arrival of the internet. Without the right conversations now, we risk repeating exactly the same mistakes of the dotcom boom and bust. This isn’t just about replacing your coffee cup today, but realising if the world is to progress it needs to clamp down on a range of unsustainable behaviours. All of our investments will be impacted as a result.

Over the next 20 years, sustainability risks will affect every part of the value chain and every sector of industry, just as the internet has changed every part of our lives.

Finding winners and losers will not just be about picking a few wind turbine firms, just as it wasn’t about picking a few dotcom start-ups in the mid-1990s.

Equally, the biggest fallout from the internet boom was felt by incumbent businesses, who failed to wake up to the revolution.

So long-term success will mean looking at how existing businesses deal with the risks confronting us, and choosing those that are moving towards a sustainable approach in everything they do.

Hong Kong investors are taking sustainability seriously. The asset management industry must live up to their expectations. Whether from a financial or environmental perspective, we can no longer afford to operate in a vacuum.

This is a wake-up call.

 

Schroders commissioned Research Plus Ltd to conduct an independent online survey of 25,743 investors throughout the world, with fieldwork held between 4th April – 7th May 2019. This research defines ‘investors’ as those who will be investing at least €10,000 (or the equivalent) in the next 12 months and who have made changes to their investments within the last 10 years.

 

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