Sustainability amidst the pandemic and beyond rountable webcast

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Host: Mr Victor Wong, Head of Asia-ex Japan ESG, UOB Asset Management
Speakers & panelists: Clockwise from top left

  • Mr Thio Boon Kiat, CEO, UOB Asset Management
  • Ms Mari Mugurajima, ESG Analyst, Fukoku Capital Management (Japan)
  • Mr Kamal Muhd, General Manager, UOB Asset Management (Brunei)
  • Mr Tom Keenan, CEO of Robeco Singapore
  • Ms Eugenia Koh, Head of Impact Investing and Strategic Engagements, Standard Chartered Bank
  • Mr Chong Jiun Yeh, CIO, UOB Asset Management


Edited excerpts from the Inaugural UOBAM Roundtable Webcast (3 June 2020)

Victor Wong: The global Covid-19 pandemic has raised the awareness that current lifestyles and the way businesses are run do have a huge impact on the world as evident by the challenges now facing us on the social, healthcare and economic fronts. There is clearly a pressing need for the investment community to play a key role in supporting the growing emphasis on environmental, social and governance (ESG) issues. Let’s find out from our speakers and guests how companies can help to refocus their priorities for a more sustainable future and create a virtuous cycle with benefits for all.

 

Why Sustainability is important and why it is gaining pace

Thio Boon Kiat: Sustainability has been gaining traction in recent years and has been recently thrusted into the forefront due to concerns over climate change. Rising carbon emissions and sea levels have led to the realisation that our current actions will leave a lasting negative impact on future generations. It has since been more widely discussed at global forums such as the annual UN conference on climate change.

 

Link between sustainability and asset managers

Thio Boon Kiat: We note that asset owners and investors have also become increasingly committed to ensure that they too are investing responsibly and for a greater purpose. As asset managers, we have to be socially responsible stewards for the world and play a vital role by offering sustainable investing solutions for both asset owners and investors alike.

But first, asset managers will need to build up their own investing capabilities and a culture of embracing sustainability. At UOB Asset Management, we deeply believe that we have a part to play as a stakeholder in the global economy.

This pandemic has caused the world to ‘reset’ and presented us with an opportunity to develop sustainable, resilient strategies as well as recovery plans that help drive the integration of sustainability within our business models. The current health crisis may have thwarted some plans and disrupted our lives, but sustainability cannot afford to take a backseat. It is clear that companies must now shift from reactive to proactive strategies with a greater focus on sustainability and resilience in order to make the transition to the ‘new normal’.

Indeed, this new focus has paid off even during these uncertain times. ESG funds have generally outperformed amid volatile markets. So it is possible to invest for both profit and purpose.

 

What will the post-pandemic world be like?

Chong Jiun Yeh: Things will certainly change in the post Covid-19 world. We will see a shift towards a more deglobalised world with more “go-it-alone” politics and the emergence of manufacturing renaissance in America and Europe. Supply chains will become more localized.

Against a backdrop of monetary and fiscal stimulus by the G7 nations, this will lead to some emerging economies being left behind while financial markets will remain vulnerable to bouts of volatility swings and potential asset bubble bursts.

Trends forward will include that of the work-from-home (WFH) or what is also termed as the isolation economy. Sectors that will benefit will be technology, media, telecommunications and e-commerce. Those that will face challenges will be in travel-related businesses such as airlines, hotels and services who will struggle. The oil and gas industry may take many years to recover. In the SDG space, certain UN goals will be delayed in the near term because of the recessionary climate. But in the longer term, we see technology, healthcare and insurance becoming more prominent.

 

Sustainable impact has to be measurable

Eugenia Koh: ESG integration is indeed becoming mainstream. Impact investing is also gaining prominence with a focus on generating positive, measurable social and environmental impact alongside financial returns. The key word in impact investing is measurable. Often, the best solutions found in this space are those that we have been able to tangibly quantify the impact made.

Currently, the majority of retail investors are not familiar with sustainable investing. Essentially in their minds, it is mainly about exclusions or negative screening which is about avoiding ‘sin’ stocks and sectors.

Sustainable investing means different things to different people. In our recent investor survey, we found that the familiarity with terms such as ESG integration was very low at less than 50%. It was higher among the affluent investor base but within the general investing population, only 20% of respondents are familiar with ESG investing.

Hence, education is critical for both investors and the advisors who manage their wealth. We have found that the lack of knowledge is a barrier. We need to simplify the way we present these concepts and clearly explain how these strategies do lead to better risk management and potential opportunities.

It is also important to keep a watch against ESG or green washing where claims of ESG integration are exaggerated. We see this happening first hand at Standard Chartered where we are pitched a sustainable investment every other week. Honestly, not every solution labelled as such is true to its name. This is why late last year we launched ESG Select which is our proprietary in-house framework that curates and labels what qualifies as a sustainable product.

 

Sustainable investing opportunities will grow

Tom Keenan: From speaking to many investors, it is important to have honest conversations on the risk and return trade-offs as solutions differ and sustainable investing means different things to different investors. We did a survey of investors last year and found that they gravitated towards a few focus areas when it came to sustainable investing. Good health and well-being, affordable and clean energy and quality education were among the top goals globally with some variations across markets.

Health as a theme has risen significantly and was top in most of the markets including Singapore. There is also a focus on clean water and sanitation. While climate may seem to have taken a backseat, enabling affordable and clean energy remains still in the top 5. We have seen a number of solutions playing into these themes from mutual funds and ETFs (exchange traded funds) to more direct investment opportunities. While we are still in a nascent stage with sustainable investing, it is really exciting to see both investor appetite and sustainable investing opportunities grow.

 

UN’s Sustainable Development Goals key in the expansion of the ESG investment in Asia

Mari Mugurajima: When we started ESG investment in 2003, the size of ESG investment in Japan was not so big. However, in 2015, the Government Pension Investment Fund (GPIF) signed the Principles for Responsible Investment (PRI) which led to Japan's ESG investment expanding dramatically. As a result, many Japanese investment managers also signed the PRI and ESG investment in Japan has been growing ever since. The number of PRI signatories as of April 2020 has more than double from 2014.

Similarly, the number of PRI signatories in other Asian countries such as Singapore, Malaysia, China and Hong Kong is also increasing as more Asian investment managers started to get into the ESG space. Some of the reasons for the increase in PRI signatories in Asia is due to the development of laws, regulations and guidelines pertaining to ESG information disclosure in Asian countries.

The UN’s Sustainable Development Goals (SDGs) have been key to the expansion of the ESG investment in Asia because the 17 SDG targets are issues that are important here and ESG investment are seen as tools to solve them. By engaging in ESG as an investment manager represents a step closer to the achievement of these goals that can lead to sustainable future.

 

Overlap in Islamic and ESG investing

Kamal Muhd: With Japan initiating the move, this has encouraged more assets owners in Asia to follow suit and in the last four years, we have seen retirement and pension funds signing on the PRI. In the area of Islamic or Shariah investments, there is an overlap and similarities with sustainable investment as both have an ethic-based foundation in the concern for human rights and the environment in the interest of future generations. The Shariah universe is tilted as in many ESG investments towards social and environmental dimensions. Hence we see opportunities combining both Shariah and ESG investments.