Sustainable investing in Asia Pacific is making strides towards catching up with Europe, says Mariam Ashroff, Head of Sustainability Management at LGT Asia.
Asian investors’ views on sustainable investing have transformed in recent years. In particular, the pandemic brought to light the extent to which social and environmental issues are deeply interconnected with global economic growth.
Consequently, interest and awareness of sustainable investing have grown exponentially among wealthy investors in Asia, resulting in the popularity of investments that help solve global challenges such as climate change and inequality. A recent survey by Robeco stated that sustainable investing in Asia Pacific has outpaced the US and is making strides towards catching up with Europe, the world’s leading region in sustainable investing.
The two main drivers of the investors’ interest in sustainable investing are:
Many investors are interested in the real-world impact that can be realised when investing in sustainability-related thematic investments. In Asia, a majority of investors allocate some of their equity portfolio to a thematic approach and are seeking to increase allocation in themes related to climate change.
While Asia’s growth in the past decade has contributed to reducing poverty in the region, this growth has resulted in developmental challenges such as environmental damage due to increasing greenhouse gas emissions. Despite the developmental challenges Asia faces, there are compelling sustainable investment opportunities in areas of healthcare, renewable energy, financial inclusion and decarbonization.
The popularity of sustainability themes in Asia can be attributed to the sustainable development plans of China, the largest economic driver in Asia. China has ambitious plans to boost the development of strategic emerging industries such as renewables, electric vehicles, artificial intelligence and industrial robotics. Government subsidies and support of such industries has bolstered investor confidence in such themes. Due to such subsidies, China is leading in the renewables production space.
On the other hand, concern over global issues such as food security have also attributed to the rise in interest in sustainability themed investments. Food prices, like any other price, are determined by demand and supply factors. In the current macro environment, supply related factors are the main drivers for food price shocks The disruptions from the pandemic, Russian-Ukrainian war and unfavourable weather due to climate change are all contributing to surging food prices and food inflation. These events have brought the themes of food security and efficiency to the forefront.
Asian economies are more exposed to food inflation given a much higher weight of food items in the consumer price index (CPI) basket. Additionally, regional issues such as China’s pandemic lockdowns, Thailand’s swine fever outbreak and India’s heat wave add to concerns about food scarcity. This is driving an enhanced interest in innovative companies that are responding to the scarcity in the market. Such companies strive to combat food inflation through innovation to improve agricultural yields and increase supply chain efficiency.
Asia’s Next Generation leaders who are more socially conscious have recognised these opportunities and are driving a shift in mindset and capital allocation towards sustainable investment. We expect this shift to become more pronounced as 35 per cent of Asia's wealth is expected to transition to the hands of millennials in the next five to seven years.
In total, LGT invested CHF 39.1 billion in sustainable investment solutions as at the end of 2021, which corresponds to 27.2 percent of total assets under administration.
Regulators and influential investors have been another driver for the rising interest in sustainable investing amongst investors in Asia. Regulators and government agencies in Singapore and Hong Kong have been driving the growth of sustainable investing and ESG adoption within financial institutions and other major industries in these cities.
Singapore has a national agenda for sustainability and the Monetary Authority of Singapore has launched an ambitious Green Finance Action Plan to develop Singapore into a leading sustainable finance hub. Similarly, Hong Kong has published a Climate Action Plan 2050 and the Hong Kong Monetary Authority is actively promoting green and sustainable banking.
In the next few years, we are likely to see a continued growth in sustainable investing in Asia.
When it comes to investment ideas with a focus on sustainability, LGT analyzes relevant ESG macro themes and identifies investment opportunities in areas where the private sector plays a key role in providing solutions to sustainability-related challenges. Particular consideration is given to companies that contribute to the achievement of the 17 Sustainable Development Goals (SDGs) defined by the United Nations in 2015. LGT’s current thematic investment ideas include sustainable food systems, climate protection and clean energies, and the circular economy.
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