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HNWIs in Asia Pacific Drive Demand for ESG

Wealth Management

By Greg King, CFA  |  June 23, 2020

Over the past 10 years, environmental, social, and governance (ESG) investing has changed from a fringe concept to a regular activity. Regardless of whether the growth in ESG investing has been driven by client demand or a fiduciary focus on ESG-related risks, the numbers show that ESG investing has moved mainstream and warrants attention from industry participants across the globe. For wealthy investors, research shows that high net worth individuals (HNWIs) are demanding a clear view of where their money is invested and how it is supporting society, rather than simply focusing on growth.

Asia Pacific Leads Growth in ESG Investments

In the 2018 Global Sustainable Investment Review, the Global Sustainable Investment Alliance (GSIA) summarizes the status of sustainable and responsible investing in several global markets. The organization’s research collates the results from market studies of regional sustainable investment forums in Europe, the United States, Canada, Japan, Australia, and New Zealand. The analysis shows that Japan and Australia/New Zealand saw the fastest growth in sustainable and responsible investing.

The GSIA report draws on data from two member organizations in the Asia Pacific region: Japan Sustainable Investment Forum (JSIF) and Responsible Investment Association Australasia (RIAA). According to the report, “In Japan, sustainable investing assets quadrupled from 2016 to 2018, growing from just 3% of total professionally managed assets in the country to 18%.” Japan was the fastest growing region in the GSIA report, followed by Australia/New Zealand. According to the RIAA, responsible investing now represents 63% of the assets managed professionally in the two-country region, up from 51% in 2016.

Investors Are Demanding Social Responsibility in Their Portfolios

FactSet’s research confirms that HNWIs are increasingly demanding a focus on socially responsible investing in their portfolios; this is especially true for investors in Asia. In 2016, FactSet collaborated with Scorpio Partnership to assess how HNWIs rank the importance of culture when evaluating their wealth managers. Of the 1,022 HNWIs surveyed globally, 212 (21%) were based in Singapore. The average age of the Singapore respondents was 39 and their average net worth was $6.8 million.

One aspect of assessing culture is understanding how their wealth manager and portfolio matches their social values. One of the key takeaways from the survey was that HNWIs want to integrate responsibility into every part of their wealth strategy. While HNWIs are increasingly demanding that the companies in which they invest have positive practices regarding ESG issues, they are still looking for a good return on their investment.

The drive for the integration of socially responsible investments into portfolios is universal. Socially responsible investments—which consider both financial return and social good—now make up one-third of HNWI portfolios globally. Half of all investors expect their wealth management firms to screen securities based on ethical criteria. This share is slightly higher in Singapore where 56% of HNWIs want their portfolio to be managed and allocated in a socially responsible manner.

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Crucially, the impetus for socially responsible investing is set to grow. The majority (69%) of all survey respondents expected their allocations to socially responsible investments to increase within five years; in Singapore, 75% of these investors had this expectation.

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In many respects, calls for a more socially responsible investment strategy mark a power shift in the dynamics between client and advisor. Now more than ever, HNWIs are demanding greater insight into where and how their wealth is being invested and they are looking to their financial professional to guide them in making investments that align with their values.

Increasing ESG Disclosures in Asia Pacific

Investors are increasingly demanding better information to help them make informed decisions around ESG investing. Their demands are putting pressure on companies to provide this data but the issue has also received the attention of governments, regulators, and exchanges. In its 2019 report, ESG Disclosures in Asia Pacific, the CFA Institute reports that the volume of ESG-related disclosures has increased in Asia Pacific in recent years. The reasons behind this increased focus include adherence to international best practices, ensuring that companies in the region can compete successfully for international capital, and preparing companies for a global shift to sustainability.

The report focuses on seven Asia-Pacific markets—Australia, China, Hong Kong SAR, India, Japan, Singapore, and Thailand—and examines the various ESG disclosure regimes across the region. With reporting requirements ranging from voluntary to “comply-or-explain,” the organization points out that not all disclosures have value for investors. The CFA Institute calls on all interested parties, from regulators to asset owners, to continue to improve the quality of ESG information.

Conclusion

ESG investing is growing rapidly across the Asia Pacific region, largely driven by investor demand. As the importance of sustainable and responsible investment continues to grow, investors are increasingly looking for higher-quality ESG investment information.

This article originally appeared in Asian Private Banker.

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Greg King, CFA

Senior Vice President, Strategy Senior Director, Wealth Product Development

Mr. Greg King is Senior Vice President, Strategy of Wealth and Product Development at FactSet. In this role, he focuses on the allocation of resources for all areas of the Wealth Management business; from market research and product development to implementation of a parallel sales and marketing plan. Mr. King moved to London from the U.S. in 1999. Prior to leading FactSet’s Wealth Management Strategy, he spent eight years as Director of Workstation Solutions for the EMEA and APAC regions, and before that, was Vice President, Institutional Sales in FactSet's UK Investment Management region. Mr. King earned a degree in Economics from Boston College and is a CFA charterholder.

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