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In today’s landscape, many investors are looking for more than financial returns when considering how to allocate their wealth. The rise of investing that considers environmental, social and governance (ESG) factors reflects the growing desire among high net-worth individuals (HNWIs) for financial vehicles that also embody a sense of social good—whether it be fighting climate change, ameliorating poverty or increasing transparency over corporate supply chains. The global sustainable investment market, currently already worth tens of trillions of dollars,1 will likely only expand further as ethical concerns increase in importance for the well-heeled.

In Asia, this trend is still in its infancy, although signs point to a future boom in ethical investing as young HNWIs across the region supplant their elders as the chief source of investment wealth. According to research conducted by The Economist Intelligence Unit (EIU) and commissioned by RBC Wealth Management, Asian HNWIs may already be considering ESG factors more strongly than their British and North American peers, with young HNWIs leading the charge. This reflects both the ethical dimension of investing along ESG lines, and the fact that investing for good is also often a money-making proposition.

Shifting mindsets

In a survey conducted as part of the EIU’s research,2 Asia stands out as the region most convinced of the need to consider ESG factors when investing (see figure 1). Asia also comes ahead of the other regions in the survey in terms of support for ethical investing.

FIGURE 1: Social returns
“It’s increasingly important to consider ESG factors when investing” (Percentage of HNWIs agreeing, by economy/region)

*Forecast Source: The Economist Intelligence Unit

In terms of dollar value invested along sustainable lines, however, Asia is still playing catch-up with other regions. According to research published in late 2017, just US$52 billion of funds in Asia (excluding Japan) were managed according to ‘responsible’ investment strategies, compared with US$8.7 trillion in the U.S. and a whopping US$12 trillion in Europe.3

Yet as the booming economies of the region drive significant increases in wealth, the demand for sustainable investment products may catch up with Britain and North America. In recent years, the number of HNWIs in Asia has increased rapidly, with growth set to continue well into the coming decades (see figure 2).4

“One of the only reasons we don’t have more impact investing in Asia to date is that it is still a fairly new concept and approach for many members of the investment community, but it is rapidly gaining traction,” explains Amit Bouri, founder and CEO of The Global Impact Investing Network. “The upfront challenge is awareness, and that’s spreading rapidly. Awareness is converting into real interest, and increasingly to capital deployment.”

FIGURE 2: Asia’s century
Percentage increase in HNWIs, select Asian economies

Magnus Grimeland, founder and CEO of Singapore-based global startup generator and early stage venture capital firm Antler, believes the desire for more focus on ESG factors comes from HNWIs seeing the challenges the whole of Asia is facing across a number of dimensions. These dimensions include “the ‘unbanked’, to the effects of climate change on the environment, to employment for a growing population and more. Investors want to be part of the solution to these wide-reaching problems,” he says.

Priorities of youth

The growing focus on ESG principles could also be driven by the changing demographics of wealth in the region. Millennials (defined as those born between 1981 and 1996) already outnumber Baby Boomers (born between 1946 and 1964),5 so as they become HNWIs—through inheritance or their own efforts—and begin to invest, their investment preferences could start to move the ESG needle in Asia.

Indeed, our survey found that Asian Millennials are more focused on responsible investing, with a fifth saying over the next five years, their investment strategy will become more ethical by focusing on ESGs and impact investing, compared with only 11 percent of Baby Boomers.

More Asian Millennials and members of Generation Z (born between 1997 and 2001) and Generation X (born between 1965 and 1980) also believe to a higher degree than Baby Boomers and members of the Silent Generation (born in 1945 or earlier) that it’s increasingly important to consider ESG factors when investing (see figure 3).

FIGURE 3: Mind the generation gap
“It’s increasingly important to consider ESG factors when investing” (Percentage agreeing, by broad age cohort, Asia only)

The enhanced focus on ethical investing among younger HNWIs in Asia reflects broader generational schisms in the region, particularly in comparison with Canada, the UK and the U.S. In our survey, over two-thirds of young HNWIs in Asia (including members of Generation Z, Millennials and Generation X) said that their views on wealth differ from those of their parents, versus a little over half in Canada, the UK and the U.S.

“The generational shift in assets, combined with generational differences in the prioritisation of impact and sustainability, has the potential to dramatically change financial services in Asia,” says Bouri.

Doing well by doing good

Despite the differing focus on how to invest, financial goals remain similar across generations, with “increasing wealth” topping a list of various potential aims in our survey. Younger investors may be linking this aim with ethical investing to a higher degree than their parents, given a growing body of research which demonstrates that ESG investing can contribute to more stable returns and lessen investment risks.6 “It is starting to become a powerful driver of conversations about what they want their family legacy to be,” says Bouri. “Younger generations are very focused on issues like climate change, inequality and sustainability.”

As a result, younger Asian HNWIs’ enthusiasm for investing along ESG lines may end up being a win-win, with benefits for both society at large and their own portfolios.

References
  1. Global Sustainable Investment Review 2018, Global Sustainable Investment Alliance, http://www.gsi-alliance.org/wp-content/uploads/2019/03/GSIR_Review2018.3.28.pdf
  2. In May–June 2019, the EIU surveyed 2,094 individuals, including 440 respondents from four Asian economies: China, Hong Kong, Singapore and Taiwan. In addition to spanning regions, gender and generations, the survey included HNWIs (those with at least US$1MM in investable assets), adult children of HNWIs and those who are not yet HNWIs but who have a minimum income of US$100,000
  3. Global Sustainable Investment Review 2016, Global Sustainable Investment Alliance, http://www.gsi-alliance.org/wp-content/uploads/2017/03/GSIR_Review2016.F.pdf
  4. For more information, see the 2019 Wealth Opportunity Index
  5. Cale Tilford, “The millennial moment—in charts”, Financial Times, 5 June 2018, https://www.ft.com/content/f81ac17a-68ae-11e8-b6eb-4acfcfb08c11
  6. “Environmental, Social and Governance Factors Can Be Material Risks for Fixed Income Investors, Finds World Bank Group and GPIF Report”, World Bank Group and Japan’s Government Pension Investment Fund, 19 April 2018, https://www.worldbank.org/en/news/press-release/2018/04/19/environmental-social-and-governance-factors-can-be-material-risks-for-fixed-income-investors-finds-world-bank-group-and-gpif-report

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