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Friday, February 01, 2019, 14:11
Impact investing — breaking down the barriers
By Sophie He
Friday, February 01, 2019, 14:11 By Sophie He


UBS has gone to great lengths to promote sustainable investment among all its investors across the Asia Pacific, having identified what it calls three ‘key pillars’ that are crucial to helping investors know what it’s all about, and the benefits it will bring. (PHOTO / VCG)

HONG KONG - Your investment portfolio should represent what you care about, says UBS.

Investors from the Chinese mainland and Hong Kong are very interested in, and willing to invest in sustainable projects although not enough of them have such investments in their portfolios, according to research released by the Swiss multinational investment and financial services group in September last year.

Mario Knoepfel, head of sustainable investing advisory for Asia-Pacific at UBS Global Wealth Management, told China Daily they had talked to 5,300 investors from 10 countries and regions with investable assets of more than US$1 million in 2018. Around 86 percent of the investors from the Chinese mainland said they would pick a sustainable project even with lower returns, but with a positive impact, over a traditional one.

Impact investing is investing to drive and create change

Mario Knoepfel, Head Sustainable & Impact Investing Advisory, Investment Platforms and Solutions, Asia-Pacific, UBS Global Wealth Management

While 85 percent of investors from Hong Kong said they’re interested in sustainable investing, only 34 percent said they have such investments in their portfolios. Globally, 39 percent of investors have sustainable investments (accounting for more than 1 percent) in their portfolios, according to UBS’s findings. For those who have yet to embrace sustainable investing globally, according to Knoepfel, not knowing its impact is the main deterrent to starting it.

The report shows that 72 percent of investors worldwide point to the difficulty in knowing the impact of sustainable investments as a barrier, followed by the view that sustainable investment isn’t well established yet (68 percent), and preference for maximizing returns and supporting a cause (67 percent).

For Hong Kong investors, four barriers clearly stand out — a lack of clarity on the impact sustainable investments have a feeling that the right products don’t currently exist; fears that returns will be lower; and concerns about high fees.

Three pillars to understand

Knoepfel said UBS has identified three pillars in sustainable and impact investing to help investors better understand the subject.

The first pillar is “exclusion” — excluding companies or industries from portfolios in which they are not aligned with an investor’s values.

“Exclusion is basically the oldest approach of sustainable investing that goes back more than 100 years, which is simply about alignment with one’s values, meaning I don’t want to invest in a weapons producing company or I don’t want to invest in tobacco companies, for example. So, I can sleep well at night with my investments,” remarked Knoepfel.

The second pillar is “integration” — integrating environmental, social, and corporate governance factors into traditional investment processes to improve a portfolio’s return on risk. Integration means you’re looking at ESG factors. For example, if you invest in a company that’s listed in the stock market, you will not only look at its financials, which analysts would normally do, but you go beyond that and look at how the company performs, how it is run and how it addresses environmental issues, Knoepfel explained.

It means that you invest in clean technologies, and you care about how the company treats its workers. You would avoid investing in companies that have issues with child labor or slave labor somewhere in the company, and you would ask about the company’s internal controls and what they are doing to fight corruption.

“The reason this is important is because good companies, well-run companies that care about their employees that invest and innovate constantly, tend to provide better performance over time because they have less risks of something going wrong that is hitting it,” Knoepfel said.

Mario Knoepfel, Head Sustainable & Impact Investing Advisory, Investment Platforms and Solutions, Asia Pacific, UBS Global Wealth Management. (PHOTO PROVIDED TO CHINA DAILY)

He cited the case of British oil and gas giant BP, whose oil platform in the Gulf of Mexico blew up a few years ago, releasing millions of barrels of crude oil into the gulf. But, the company had stood out long before that as for sustainable investors, they had a track record of multiple environmental issues over time, the company had more of such accidents than many of its competitors.

The track record means BP had to pay fines and it could create environmental damages, so the company brings more risks for investors. 

“Exclusion” and “integration” are very much about investing in stocks and bonds, where you can get in and out any time, according to UBS.

The third pillar is “impact investing”. The difference between impact investing and the other two pillars is what investors want to achieve with their investments if they want to make an impact. 

“So you want to actively contribute to the change. Integration means you pick companies that are well run and well operated or have lower risks and more innovative, but they’re already doing that. And you’ve just invested in these companies. Impact investing is investing to drive and create change,” said Knoepfel.

He also explained that impact investing usually means investing in enterprises that are not listed in the stock market, which are common in earlier stages, where investors provided these companies with capital so they can grow what they are doing, and expand their businesses and the impact they generate.

For example, there are companies that have great innovative models, but they need capital to scale what they’re doing. Like if they have this one clinic, but they want to replicate the model in other areas, then you give them capital, so they can scale this model of improving people’s access to healthcare.

Optimistic trend in Asia

Besides direct investment, investors can also choose to invest in bonds, such as those issued by the World Bank, which are to support development in emerging markets and the capital of the World Bank is guaranteed by countries that are its founders. It means the risks for investors are very low.

Knoepfel said UBS has been introducing sustainable investing and impact investing to all its investors. It launched an impact fund in 2016 and raised US$325 million in a global impact fund led by TPG in 2017 but, in order to further push forward the concept in this region and raise public awareness of it, all stake holders must do the same. 

He said sustainable investing or impact investing has been well established in Europe, but it’s still in its infancy in Asia. Nonetheless, the trend is very good, as revealed in UBS’ report, with investors being very eager and interested in the concept.

Knoepfel stressed that in terms of promoting and inspiring sustainable investment and impact investing, the Chinese mainland authorities have been doing a great job, as more Chinese investors are interested in the topic compared to the global and Asian average.

He believed this is due to the central government’s efforts to promote the use of clean energy, reduce pollution and its active promotion of technologies.

“So, in Asia, we’re getting there, but we’re clearly not yet there in terms of what we see is happening in Europe. But, I’m very optimistic and positive that we’re getting there.” 

sophiehe@chinadailyhk.com


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