These are still comparatively early days for the ESG investment sector and Asia is probably the youngest one in terms of getting into the act, while Europe and the US are a bit further down the line. Across all regions, firms are scrambling to win a slice of the pie.
Wealth and asset management firms in Hong Kong typically do use one of the environmental, social and governance factors in weighing how to put money to work, a poll by a regulator shows.
The Hong Kong Securities and Futures Commission drew responses earlier this year from 1,124 firms, of which 794 are in asset management. Of that survey total, 660 firms – or 83 per cent – said they considered at least one environmental, social and governance factor in understanding whether to put money into a company or not.
The watchdog’s survey also found that 68 per cent of these firms said ESG factors could be a source of financial risk and affect portfolios.
The study comes out amidst continued industry and media focus on ESG issues, heightened by concerns about global warming, pollution, poverty and treatment of different population groups, and how companies are run and held accountable to owners.
Most of the firms polled by the HK SFC said they supported stronger ESG disclosure rules for listed companies, an idea that has been put forward by the Stock Exchange of Hong Kong in May this year. Many of such firms are using their shareholder muscle to make changes; 63 per cent of the firms questioned said they practise “responsible ownership” by voting their shares and engaging with company managers.
To improve the financial performance of investment portfolios and satisfy client demand, 35 per cent of the 660 asset management firms which considered ESG factors have implemented a consistent approach to systemically integrate ESG factors in their investment and risk management processes, rather than doing so on an ad-hoc basis.
Some respondents have established governance and oversight measures, such as implementing an ESG policy approved by the Board, defining in the organisational chart the functions involved in integrating ESG factors in the investment process and designating board members to focus on ESG issues.
The local Hong Kong sector must raise its game, the regulator warned. “Local asset management firms lag behind their counterparts with overseas-based parent companies in terms of ESG practices. The latter generally have stronger ESG investment processes relating to research and portfolio management, governance and oversight measures, and more of them support international initiatives such as the TCFD and the United Nations Principles for Responsible Investment,” it said. (TCFD stands for Task Force on Climate-related Financial Disclosures.)
With firms such as UBS, Indosuez Wealth Management, BNP Paribas, Cornerstone and Tiedemann Advisors making a noise about their ESG efforts, firms are trying to carve out a name for themselves in this area. Even if debate continues over ESG’s merits, wealth managers know that they have to be at the table.