Asian investors have traditionally used intelligence and enterprise with a primary focus on financial returns. Unlike the West, Asian wealth creation of the masses and the individual investor is still relatively new, and in many countries investing is still a luxury many cannot afford. So, it stands to reason that financial returns should remain the focus. We should only worry about other stakeholders when we can afford to, should we not?

The answer is no, given what we now understand about the interconnectedness of every stakeholder in a business. Although – but perhaps also because – democratised investing is still relatively new in the region, Asian investors have an opportunity to leapfrog to a more sustainable paradigm and establish themselves as “Consequential Investors”, with an aim to achieve returns with impact, for all stakeholders.

The core principle behind consequential investing is to improve all stakeholders’ value. Paying heed to every stakeholder class leads to balanced outcomes, such as just decarbonisation transitions that account for the impact of greening on communities. Specific to investing, the recognition that businesses have many more stakeholders than shareholders yields the inevitable conclusion that neither impact nor financial returns can be sustained without the other. Therefore, achieving financial returns while knowing and improving your impact on other stakeholders is what a consequential investor should aim for.

I categorise stakeholders by the form of capital they represent: Human (employees), Social (society), Environmental (mother earth) and Financial (shareholders). As a shareholder, incorporating the consequences or impact of business operations on all relevant stakeholders should positively impact your investments’ underlying value. Last I checked, every listed company has more stakeholders than shareholders. They now vote en masse as consumers, suppliers, regulators and civic society, and can drown out opposing shareholders’ interests and returns. Furthermore, new and improving accounting methods are allowing us to reflect a firm’s progress (or negative impact) for all stakeholders on its profit and loss statements and balance sheet. This should make it possible to understand these consequences as a matter of sustainable financial returns, thus separating the sustainable and thus profitable business models from the riskier ones.

We can put the consequential investing ideas into practice with environmental capital, a stakeholder that has become an important priority for investors globally. Amongst the many environmental issues, climate change is top of mind for most governments, regulators, policy makers and even companies. Whether you believe in climate change or not, as an investor you will not be able to hide from climate investing and its ripple effects.

Most climate investing seems to be driven with a view to reduce risks and costs – by exiting coal mines and high carbon emitters, for example – instead of pursuing potential growth opportunities. But Asia has some of the most exciting growth opportunities from climate investing, and we should not miss this chance to deliver not only impact, but financial returns as well.

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There are three good reasons that Asia is prime hunting ground for returns with impact in the context of the environment:

1. Asia is one of the most populated regions with some of the fastest growing economies and companies, thus setting the ultimate scale of many global environmental challenges and solutions in the future. E.g., Fifteen Asia-Pacific countries account for 50 per cent of the world’s carbon emissions. Also, about 1 per cent of global emissions are tied to just one Asian company: Toshiba, which accounts for about 435 million tons of carbon dioxide equivalent from its own operations both upstream and downstream and also product use emissions.

2. Asian companies have the advantage of scale to bring technology costs down to replace the old. Many of the most exciting environmental solutions are being developed and commercialised in China, Japan, Korea and Taiwan, whether it be green technologies, such as electric vehicles, solar and wind turbines or recyclable plastic, CO2 free cement, green steel and so on.

3. Some of the most environmentally challenging industries needing transition like steel, chemicals, oil and gas, and mining reside in Asia. Thankfully, Asia has also been endowed with valuable solar, hydro and wind resources to help them transition to cleaner energy and thereby meet the global challenge.

The potential for impact is clearly there. How do we then find the opportunities that can also produce financial returns?

A simple way has been to invest in environmental tech. Whether that be offshore floating wind turbines, next generation solar cells, carbon capture, utilisation and storage, carbon recycling or hydrogen fuel cell technology, the global and Asian total addressable market by 2050 can be in the hundreds of billions of dollars and thus very attractive indeed.

For Asia, this focus on tech needs to be complemented with analysis of each country’s environmental aspirations – as outlined in the countries’ nationally determined contributions (NDCs) as part of the Paris agreement – and the accompanying policy tools to achieve them. As an example, Japan has its “Green Growth Strategy Through Achieving Carbon Neutrality in 2050”, which identifies 14 growth sectors and highlights policies that will help them achieve Japan’s NDC and targets. Unlike Europe, Asian countries’ NDCs are not collective nor in sync with a variety of environmental targets. This also means that each country will pursue indigenous industrial policies to achieve those targets, providing investors with sector-specific tailwinds. We expect these NDCs to be reliable indicators of policy priorities. A country runs the risk of being labelled an environmental recalcitrant if it does not report on its progress towards its NDC as doing so is legally binding under the Paris Agreement.

In short, we are being given returns with impact on a platter. As consequential investors we should get as excited with Asian countries’ industrial policies as we do with new environmental technology.

History has shown seismic shifts in investing approaches do not happen in a vacuum. Investors shifted from a simple return focus to risk-adjusted returns in the 1950s when risk metrics were developed. Now as we look for returns with impact, we are seeing impact measurement move toward standardisation and mainstream acceptance. As an investor, almost every day I see regulators like the Monetary Authority of Singapore, exchanges like Singapore Exchange, asset owners like Temasek, and companies especially in Asia committing to some form of stakeholder value creation effort and promise, with metrics and measurements. This universal acknowledgment of all stakeholders should see significant investment opportunities for a consequential investor.

The writer is the founder and chief executive of Panarchy Partners.