Growing interest in sustainable investing yet to translate into action: Lombard Odier study

A MAJORITY of high-net-worth (HNW) investors in Asia-Pacific (Apac) have expressed interest in sustainable investing and have increased conviction that sustainability will deliver superior returns, but these beliefs have not yet translated into action.

Lombard Odier's annual study of HNW investors across the region has shown that some 78 per cent of the 450 HNW investors polled across 8 markets say they are interested in sustainable investing, with interest highest among those aged between 18 and 34.

Nevertheless, there remains a stark gap between interest on one hand, and willingness to act, on the other.

Some 45 per cent of Apac HNW investors hold less than a fifth of sustainable investments in their portfolios. Seventeen per cent do not hold any, while 12 per cent are unsure about the level of sustainable investments they hold, which the bank has taken to suggest that many are still unsure what sustainability is.

Presenting the study's results at a media roundtable on Wednesday (Sep 7), Jean-Francois Aboulker, who leads the Swiss private bank's offerings for ultra-high-net-worth individuals, pointed to a time lag before willingness to act will set in.

Investors are just starting to look at sustainability from a risk-return perspective, but it will take a while before they can look at this from a long-term standpoint.

Based on Lombard Odier's study, more HNW investors in Apac are seeing sustainability as an investment opportunity, marking a change of emphasis from value-driven investment to a "genuine anticipation of returns".

This perception shift is strongest among HNW investors in Taiwan, Thailand and Japan.

Singapore is the only market where HNW investors' main motivation to invest in sustainability is still values-driven, and superior returns is a factor cited by just 18 per cent as their motivation - compared to the 42 per cent Apac average.

"(They may think) yes, it can lead to superior returns, but today I need to manage my portfolio, I am short-term focused. I want to be long term, but it's hard when I see markets going down," Aboulker said.

"If we do this study in 1 or 2 years, I am sure (the portfolio allocations to sustainable assets) will increase dramatically… We are at the beginning of this huge opportunity," he added.

Younger HNW investors also said they face barriers convincing older generations about sustainable investments, including the relative underperformance of financial returns, a lack of investment opportunities with proven track records, and the lack of understanding around sustainability.

The study also found that HNW investors in the region are taking a more conservative approach in repositioning their portfolios amid market volatility. Some 27 per cent of respondents have started to divert from traditional asset classes like equities and bonds towards investing in their own companies, 44 per cent into "safer assets" like cash and gold, and 37 per cent into alternative assets, including private equity.

"It is very hard to anticipate where economies will go. Inflation is a concern, and we don't know exactly if interest rates will go extremely high. So investors are approaching traditional asset classes in a careful way," Aboulker said.

Demand for private assets is on the rise, with Singapore and Australia leading the trend. Sixty per cent of Singapore's HNW investors and 57 per cent of those in Australia are intending to increase their allocation into this asset class.

The impact of market corrections can be lower for privately owned companies and the slowdown can be smoothed over multiple years, the bank said in its study.

It noted that the S&P 500 fell around 52 per cent from peak to trough during the global financial crisis from 2007 to 2009, while private equity fund of funds lost just under half that value, based on data from Cambridge Associates.

The asset class - which spans private equity, private debt, real estate and infrastructure investments - has so far registered a similar, lower fall amid the Covid-19 pandemic, it said.

In terms of digital assets, on the other hand, HNW investors remain hesitant, the study found. Eighty-three per cent of those involved in the study have no crypto investments, or have less than 5 per cent of their portfolio invested in the asset class.

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