Covid causes investor ESG rethink in key Asian markets
Half see their portfolios becoming 100% sustainable in next three to five years
15 Apr 2021 | The Asset

On average, 64% of investors in the three Asian markets – Hong Kong, mainland China and Singapore – say that the Covid-19 pandemic has raised their awareness of environmental, social and governance (ESG) considerations and prompted them to re-evaluate ways of investing, according to a recent sustainable investing survey.

The survey, conducted in January and February 2021 by HSBC Asset Management, studied attitudes towards sustainable investing among mass-affluent and high-net-worth investors, as well as advisers in Hong Kong, mainland China, Singapore and the UK.

It found that in these three Asian markets, 84% of investors believe sustainable, environmental and ethical issues are central to managing their investments: Hong Kong (84%), mainland China (89%) and Singapore (80%). Around 65% of investors say they do not want to lose out financially when tackling ESG issues, most pronounced among them, mainland Chinese investors (69%).

However, only a quarter (26%) of their investments – Hong Kong (25%); Singapore (26%); mainland China (27%) –  explicitly consider ESG factors compared with the UK (33%). Also, nearly 60% of investors say they do not know how to approach ESG investments.

In parallel, advisers in the three Asian markets say that about half of their clients see ESG investments as important. The proportion of those who believe ESG is important to clients increases with firm size.

Within the next three to five years, half of investors in the three Asian markets – mainland China 54%; Hong Kong 51%; Singapore 46% – believe their portfolios will comprise 100% sustainable investments compared with only a third (34%) in the UK. The key drivers for future take up of ESG investments include products matching risk and return goals, a wider range of ESG investment vehicles and strategies, government incentives and better information on investment performance and ESG issues.

“Sustainable investing is taking centre stage as the pandemic is accelerating efforts to transition to a low-carbon economy,” says Pedro Bastos, chief executive officer, Asia-Pacific, HSBC Asset Management. “A key driver for investors and advisers alike is return, and sustainable investing is proving that this strategy can meet investment goals. In fact, some sustainable funds, such as equity funds outperformed their traditional peers in 2020, sending a strong message that sustainable investing can offer compelling growth and portfolio diversification.”

Sustainability (62%), environmental impact (57%) and climate change (52%), according to the survey,  are the top three ESG issues for investors across these three Asian markets, except for mainland China where consumer protection (50%) is considered slightly more important than climate change (47%). On the other hand, advisers attach more weight to environmental impact (77%), climate change (66%), clean and/or renewable energy (65%).

Barriers to ESG investing

Close to half of investors across the three Asian markets point to a lack of sustainable investment products that meet their needs and concerns, with mainland Chinese investors expressing the biggest concern (57%), followed by Hong Kong (48%). Thirty-seven percent of investors do not want to limit the range of sectors or companies they invest in, and around one-third cite high costs as a hurdle. In Hong Kong, 30% of investors also say they have not been offered such products.

Advisers in Hong Kong, mainland China and Singapore also point to a shortage in suitable products (60%) as the biggest barrier and then a lack of client demand for sustainable investment (57%).  These findings seem to conflict with the importance that investors attach to ESG issues, indicating poor levels of communication between advisers and their clients.

The survey further shows that actively managed sustainable investment products are the preferred choice amongst investors and advisers. Multi-asset investing is the most popular approach for investors in Hong Kong (53%), as in Singapore (49%). Investors in mainland China are more inclined to gain ESG exposure through thematic funds (50%).

The internet is the most important source of information for investors looking to gain an understanding of ESG issues. Notably, Hong Kong and mainland Chinese investors (both 43%) are far more likely to turn to social media as their fount of knowledge, while Singaporean investors rely on their financial advisers for information (52%).

The majority of investors say they take ESG issues into account at least once a year. However, 21% of investors in Singapore have never spoken with their advisers, much higher than Hong Kong (15%) and mainland China (6%). Mainland Chinese investors demonstrate more enthusiasm in engaging with advisers, with 57% discussing it weekly or monthly.

Only 28% of investors in the three Asian markets think their advisers are knowledgeable about ESG issues and investing,  while about two in five (39%) advisers in the region claim this to be true.