Family offices are seen as a key investor segment in the development of sustainable finance in Asia, at a time when it is increasingly gaining attention from local regulators and educators.

In Hong Kong, family office RS Group has incubated the Sustainable Finance Initiative (SFI), a community platform aimed at promoting the growth of sustainable finance. Its mission is to unlock private capital for positive impact.

The RS Group investment team, led by founder Annie Chen, achieved a 100% sustainable portfolio in 2015, with every investment not only delivering a positive financial return but also contributing to the greater good. The process began seven years earlier with the screening out of investments deemed harmful to the environment or society and gradually transitioned into investments that created a positive social and environmental impact.  

Ng Tze-wei, a consultant on advocacy and engagement with the Strategic Finance Initiative (SFI) within RS Group told AsianInvestor: “We want to shorten the journey for other private investors who wish to transition their wealth towards impact.”

The strategy being deployed by the SFI is peer-to-peer learning, “because it’s the hands-on experience that will get investors to be more active, we believe,” Ng said.

RS Group’s peer community is made up of other family offices and private investors and in Hong Kong it's a fairly concentrated market, according to Ronie Mak, RS Group managing director.  

Approximately 32% of Hong Kong’s assets under management are held within private banking and wealth management, according to the Securities and Futures Commission (SFC). “So from a strategic perspective we do believe that mobilising private wealth can have a dramatic effect in moving the sustainable finance market forward,” Mak said.

To put that in perspective, “You see institutional investors accounting for a more significant percentage of AUM [in other regions and other parts of Asia], whereas in Hong Kong it’s quite unique that such a significant amount is made up of private investors,” said Mak.

The SFC and other Hong Kong government bodies are providing strong support for sustainable finance. In September last year, the SFC released its strategic framework for green finance. In November, the Financial Services Development Council released its Environmental, Social, and Governance (ESG) Strategy for Hong Kong.

“It’s encouraging to see the Hong Kong government take key steps needed to create a strong local market,” SFI director Leonie Kelly told AsianInvestor. “It has committed to a green bond issuance programme and established the HK Green Bond Grant Scheme to subsidise the costs of obtaining certification under the HK Green Finance Certification Scheme. These developments show there is an appetite from all the key market stakeholders.”

Meanwhile in Singapore, as reported, sustainable investing is seen as a critical lever to help address Asia's growing vulnerability to climate change due to the degradation of land and ocean ecosystems, the potential weakening of human rights and access to water.

The shift to sustainable economies represents around $5 trillion of investment opportunities between now and 2030 in Asia alone, according to one international non-government estimate. Jeanne Stampe, spokesperson for the newly-formed Asia Sustainable Finance Initiative in Singapore told AsianInvestor institutional asset owners have a key role to play in financing that shift.

BARRIERS

However, there is a major barrier in the way – investor ignorance.

A survey last year by RS Group showed the extent of the knowledge gap, with 75% of respondents who indicated an interest in sustainable finance signalling that they didn't know how to begin.

While education and growing awareness is important, the SFI team recognises that demonstrating the ‘how’ of sustainable investing is critical. Hence, the creation of its pilot ‘Investor Circle’ which brings together a small group of Hong Kong private investors “who are ready to experiment and deploy capital for positive impact across the sustainable finance spectrum,” Ng said.  

Another recurring challenge for investors who want sustainable products is that banks do not see enough investor demand to warrant the development of such products. 

By focusing on the demand-side of the equation, Ng hopes to break this vicious circle. “In order to overcome this conundrum, you have to push for investor demand; that’s our focus for the Sustainable Finance Initiative,” she said.

Sustainable products are still in short supply for private investors, but Joan Shang, senior associate at RS Group, said the banks are slowly responding to the market demand. “Whether it’s negative screening or proactive ESG integration, banks are gradually increasing their offerings of sustainable products, drawing on their global capability,” she said.

Investing sustainably does not have to negatively impact returns, the SFI team believe. “It just depends what your ideal balance of the two is; there are different opportunities available across the spectrum of sustainable finance,” Mak said.

“For example, you can choose to invest directly into a social enterprise where the risk is higher and the return might be lower, but the impact is very deep because you are directly targeting under-served communities for a very specific impact,” she said.

US TRENDS

A new survey by Morgan Stanley in the US reveals that asset managers now view sustainable investing as a strategic imperative. Since the US bank last carried out this survey in 2016, the percentage of managers saying their firm has adopted sustainable investing has jumped from 10% to 75%.

While three-quarters of those polled believe a perception remains among some investors that sustainable investing requires a financial trade-off, they themselves do not agree. Some 62% went even further by agreeing that it is possible to maximise returns while investing sustainably.

Chart: Motivation for sustainable investing

Source: Morgan Stanley

And as sustainable investing strategies evolve, so it will become harder to ignore the voice of shareholders on ESG issues, the Morgan Stanley report said.

AsianInvestor will cover a series of topics that are close to the hearts of Asian family offices at our 6th Family Office Forum, on May 20. Please click this link to learn more.