Mother and daughter playing under the tree on summer lawn

How ESG investing can improve the planet for you and the next generation

Hong Kong experienced the hottest September on record. The city set new records with 15 very hot days and 11 hot nights during the month.

The highest temperature of the month was recorded as 34.5 degrees Celsius on 12 September.

Showers and thunderstorms triggered by high temperatures included a rare hailstorm – the first seen in Hong Kong for five years. Hailstorms, which usually occur in April, have only been observed 11 times since the start of the millennium.

Many will see these unusual weather events as another example of the results of global warming. And, in August this year, the United Nations warned that global warming would begin to accelerate at a faster-than-expected pace over the next 20 years.

We can all do our bit to help the environment by adjusting our lifestyles and adopting “greener” habits in our day-to-day lives.

Simple things – such as recycling, reducing our use of plastic, buying unpackaged, fresh, seasonal produce, and switching to cycling or walking instead of driving for local trips – can all add up to make a difference.

If you want to do more, consider how you invest your money. Environmentally conscious investment choices can make an even greater positive impact on the planet.

Environmentally friendly investing has been growing at an exponential rate. In fact, 169 new funds with environmental, social and governance (ESG) criteria launched during the first quarter of 2021.

According to Bloomberg, global ESG assets are expected to exceed $53 trillion by 2025. This represents more than a third of the $140.5 trillion in projected total assets under management.

Make a difference through ESG investing

By investing your money with a green approach, you seek to invest in businesses whose practices have a favourable impact on the natural environment.

While the most popular term for green investments is ESG investing, other terms you may come across include “SRI”, “impact investing” and “ethical screening”. This can make it difficult to know where to start.

Here’s how the three parts of ESG investing relate to business practices:

  • Environmental factors include climate change, raw materials and water scarcity, biodiversity, and pollution and waste
  • Social factors include community relations and labour policies, product safety, supply chain sourcing, and social impact reporting
  • Governance factors include shareholder rights, diversity, business ethics, and transparency.

Investors can buy into green investments through green bonds, green ETFs (exchange-traded funds), green index funds, green mutual funds, or simply by holding stock in environmentally friendly companies.

Invest with a focus on your values

With so many ESG funds available, it’s easier than ever to invest in what you care about most. If climate change is top of your concerns, you might opt to avoid investing in fossil fuel companies.

Or you may be more concerned about societal issues and the way a company treats their employees. If so, you can choose to invest in companies that pay the living wage across their supply chain.

Investing with values at the centre of your decisions makes ESG investing highly subjective.

What matters to you may be less important to someone else. As a result, even when investment opportunities are promoted as “sustainable” or “responsible”, they may not match your personal criteria.

What impact do you want your investments to have?

When finding environmentally responsible ways to invest your money, it’s important to understand your priorities and then find funds that reflect what matters to you.

Even with your values set out, it can be difficult to find investment opportunities that map onto your criteria. There may be areas where you need to compromise.

Can a sustainable portfolio give you healthy returns on your investments?

While sustainable funds are increasing in popularity, some investors worry that ESG investing may not deliver the investment performance they desire.

The good news is that research published in the Financial Times found that “close to 6 out of 10 sustainable funds delivered higher returns than equivalent conventional funds over the past decade”.

Until recently, there has been limited data on the long-term performance of ESG funds because of the short time they have been around. This research, carried out by Morningstar mid-2020, looked at 745 Europe-based sustainable funds and the majority of strategies have done better than non-ESG funds over one, three, five and 10 years.

The same study found that sustainable funds outpaced traditional funds during the market sell-off sparked by coronavirus in March 2020, with average excess returns of up to 1.83%.

Of course, considering ESG factors is no guarantee of investment performance. As with any stock market investment, you will still experience short-term volatility and there is always some risk involved.

However, global uptake of ESG investing is set to accelerate. Not least and rather unexpectedly, because many financial regulators, like Hong Kong’s Securities and Futures Commission (SFC), have started to require fund managers to consider ESG when screening underlying investments.

Investing is complicated enough, and ESG adds another layer of complexity. The good news is that BMP’s existing model portfolios include ESG investments. In fact, each of our core managers include ESG in their multi-asset portfolios and some have done so from as far back as early 2020.

Get in touch

We specialise in building, managing, and preserving the wealth of Hong Kong’s international community and can help ensure you make all the right steps to protect your wealth, family, and succession needs.

If you’re interested in learning more about ESG investing, we can help you understand your investment options and how they fit in with your long-term goals. Email or call +852 3975 2878.

Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Comments are closed for this post.