The Hong Kong Exchanges and Clearing’s (HKEX) support for sustainable investing and digital assets will help institutional investors in their push forward, but the city must open to maximise the potential of these moves, according to fund managers.
The HKEX plans to diversify its business and embrace megatrends as the financial industry demands access to new asset classes such as digital assets, environmental, social and governance (ESG) investments, and data and information services, noted chief executive Nicolas Aguzin on Tuesday (June 21) during celebrations for its 22nd year as a listed company.
To increase competitiveness against not only other exchanges, but also fintech companies, digital asset platforms and other start-ups, the bourse will strive to offer more innovative solutions in response to investors’ rising demand for portfolio diversification through new asset classes.
“We need to evolve from an infrastructure-led model to a client-led model and we have to go beyond our current offering, rethink our systems, go further to understand what our clients want,” Aguzin wrote in a blogpost, also on Tuesday.
Indeed, ESG investments and digital assets have been rising in popularity among institutional investors.
In 2021, a total of $36.2 billion were raised by sustainability, green, social, transition or sustainability-linked bonds listed on HKEX. Bloomberg estimated that global ESG assets under management will reach $41 trillion at the end of 2022, compared with $22.8 trillion in 2016.
Asia Pacific asset owners such as family offices have increasingly looked towards digital assets, particularly in Hong Kong and Singapore, although some remain cautious about regulations.
The HKEX did not specify how it would be improving its ESG and digital asset capabilities, but institutional investor representatives generally welcomed the support.
“Hong Kong regulators are quite active on ESG,” said Liza Jansen, head of responsible investment at Prudential, during an earlier interview. “If the regulators start to ask companies to report on ESG, it makes it a lot easier for us to take those risks into account. Because if the company doesn't report, it's very difficult for us to gauge what the actual risk is.”
Currently, HKEX has put in place certain requirements for listed companies to do ESG reporting. Climate-related disclosures aligned with the Task Force on Climate-Related Financial Disclosure (TCFD) recommendations will be mandatory across relevant sectors no later than 2025.
Jansen said Prudential is also closely following the Hong Kong Monetary Authority's (HKMA) movements on ESG.
Although life insurance companies in Hong Kong are regulated by the Insurance Authority, they believe HKMA’s ESG-related regulations will be at some point followed by the Insurance Authority as well, Jansen said.
The Securities and Future Commission (SFC) has been pushing for ESG transparency and "to be honest, has done a reasonable job in setting guidelines and so on," a Hong Kong-based managing director of portfolio management agreed. “In my experience it has been clearer than the [European rules] Sustainable Finance Disclosure Regulation (SFDR).”
BETTER LATE THAN NEVER
However, they added that Hong Kong is late in the game compared to Singapore. “On ESG, the Monetary Authority of Singapore (MAS) and GIC have been leading the way. Many fund houses chose to set up their ESG team in Singapore over Hong Kong,” they said.
“And I think generally investors are more receptive and open to ESG as an investment philosophy as opposed to a risk factor or performance driver when compared to Hong Kong.”
In addition, Singapore has been more supportive of the development of digital assets, the portfolio manager said, while pointing to the MAS’ Project Guardian, which seeks to explore the economic potential of asset tokenisation and Decentralised Finance (DeFi).
On Wednesday (June 22), Deputy Prime Minister Heng Swee Keat revealed that Singapore had awarded three more in-principle approvals for its digital payment token (DPT) licence, bringing the total up to 14 and leaving 108 pending review.
“With that said, it's better late than never,” the portfolio manager said. “Although they should really think about opening up the city first, or any effort will be futile.”