With the rapid growth of sustainable investing, what is Asia’s unique positioning and what are key drivers and investor motivations? En Lee, Head of Sustainable and Impact Investments at LGT Asia, shares his views.
En Lee, we have a confession to make: We are confused. While everyone is talking about sustainable investments and using acronyms like ESG, SDG, and PRI, I’m still unable to define what sustainable investments really are…
En Lee (laughs): It’s true, sustainable investing has gained significant global momentum leading to record inflows over the last two years and an alphabet soup of expanding definitions. This can be confusing and difficult to navigate. In essence, all sustainable investments share one core question: How do I invest today with tomorrow in mind? When defining sustainable investments, I personally find the ABC rule the easiest to remember.
The ABC rule? Another acronym?
Yes, I’m afraid, but an easy one. «Sustainable investing» encompasses a broad range of investment strategies that differ depending on the type of investor – be it private or institutional – and asset class – be it private or public markets…
That doesn’t sound easy so far.
…they can be simplified into the ABCs of approaches based on investor intentions: «A» stands for «Avoiding harm» – which is achieved by screening investments and excluding the ones with negative impact, such as certain «sin» industries like weapons, tobacco, gambling, etc.
«Investors are increasing allocations to sustainable investments to ensure their portfolios are diversified»
«B» is for «Benefitting stakeholders» – which is achieved by considering not only the shareholders but all stakeholders in the value chain including the employees, suppliers and customers. Integration of environmental, social and governance (ESG) factors are central to this approach.
Finally, the one I am most passionate about is: «C» is for «Contributing to solutions» which includes impact investing with the dual objective to generate positive social/environmental outcomes alongside financial returns.
Are sustainable investors motivated by ethics or by returns – by the alignment of their investments with their values or by mitigating risks?
We’ve observed over the years that the motivation of investors to invest sustainably has shifted from ethical alignment to risk mitigation and now to long-term value creation. Despite the pandemic and the climate crisis, sustainable investments have demonstrated resilience and outperformance over traditional investments.
Investors are increasing allocations to sustainable investments to ensure their portfolios are diversified, future-oriented and generate long-term and enduring returns.
Working for a European headquartered banking and asset management group based in Asia, I’m sure you have engaged with many different investors. Are there regional or cultural differences?
In Europe, there are many multi-generational families that have built their wealth over centuries – just like the Princely Family of Liechtenstein, the owner of LGT with a unique legacy of 900 years across 30 generations. These multi-generational families often have a long tradition of philanthropic commitment, and their sustainable investments are often an extension of how they express their values and build purposeful legacies.
«This may be one of the reasons why the European sustainable investments market is more established»
In contrast, Asia is much younger in terms of wealth accumulation. Wealthy families are usually only in their second or third generation and have just started thinking about their family identity, values and how they align these with their investments.
This may be one of the reasons why the European sustainable investments market is more established compared to Asia. But Asia is catching up – Next Generation leaders are driving this shift in mindset and capital allocation.
Do these young and dynamic sustainable investors in Asia have a different approach to sustainable investing than the more mature and traditional Europeans?
Of course, it’s difficult to generalize, but I would say that Asian investors tend to like innovative and technology-enabled investments that can be scaled in local markets. That’s probably because the greatest developmental challenges are also in Asia, where the impact of their sustainable investments can be seen and felt.
What is your prediction, will Europe and the U.S. maintain their leadership in sustainable investing?
I’m confident that the Asian market for sustainable investments will continue to grow and eventually be a global leader – in terms of opportunities, invested capital and performance.
Why?
Asia is well-positioned for sustainable investing given its attractive demographics – young population, high GDP growth, rapid urbanization, high mobile penetration. The region’s lack of access to essential goods and services and its vulnerability to environmental and social disasters also serve as catalysts.
«Singapore has a national agenda for sustainability »
Asia not only has the biggest developmental challenges but also the most compelling sustainable investment opportunities in areas of healthcare, renewable energy, financial inclusion and decarbonization, to name a few. Another key factor is the strong regulatory momentum in Asia driving sustainable finance and ESG adoption.
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, the Hong Kong Monetary Authority is actively promoting green and sustainable banking.
Are there challenges that may hinder the growth of sustainable investing?
There is a lack of standardized industry definitions and clear, consistent, and comparable ESG data. At LGT, we address this gap by collating raw ESG data from several established providers and applying a proprietary ESG rating tool to assess the sustainable quality of investments including equities, bonds, funds, and ETFs.
«That’s the other big challenge that comes with the growth of sustainable investing»
The aggregated impact of a company’s products and services are also considered in the assessment. This allows us to have informed discussions with investors and clients on the holistic performance of their portfolios.
What about greenwashing?
That’s the other big challenge that comes with the growth of sustainable investing. False or unsubstantiated claims are made in the environmental and social outcomes. When we assess a sustainable investment, we evaluate the intentionality and authenticity of the team, and ensure there are robust ESG and impact measurement processes in place to measure and track the positive outcomes created.
Any final thoughts on the future?
In a reality where the global pandemic, climate crisis, rising inequality and environmental degradation are real and urgent challenges, investing sustainably is no longer an option but an imperative. Through sustainable investing, investors can ensure their portfolios are future-proof, values-aligned and deliver long-term value.
I envisage a future where investing sustainably is the norm, and we take collective responsibility to deliver inclusive and sustainable growth for people, the planet and prosperity.
En Lee is a Managing Director and Head of Sustainable and Impact Investments in Asia at LGT, the world's largest family-owned private banking and asset management group. He leads and manages the regional impact investment portfolio in Southeast Asia and China, serving on the boards of several portfolio organizations.
