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Time to close Asia's sustainable investment gaps
OUR entire planet faces sustainability challenges. No country is immune from poverty, hunger, environmental deficiencies, and weaknesses in healthcare, schooling, and infrastructure.
But in Asia, despite astonishing progress in the past half century, these issues are still especially prominent. Millions of Asians breathe visibly polluted air in their cities. Millions work in unsatisfactory conditions.
Nevertheless, millions of investors also see that Asia is a wealthy continent and that these issues represent a significant financial opportunity in devising a solution, in industries ranging from clean energy to medicine to education.
It is unsurprising, therefore, that Asians have warmed to sustainable investing - earning a compelling return through investments that are aligned with sustainable causes.
Our latest UBS Investor Watch survey of millionaires globally revealed that Asian investors are at least as interested in this field as non-Asian peers. In China, 60 per cent of millionaires say they invest sustainably, the highest of the markets surveyed globally. In Hong Kong and Singapore, 85 per cent of millionaires say they are interested in sustainable investments.
But despite the breadth of opportunities in Asia, worrisome barriers to growth remain. In China, among millionaires who have not adopted sustainable investing, 79 per cent believe the practice is not established enough. In Singapore, another 79 per cent are concerned about whether it can make a measurable impact, and 71 per cent are concerned it will translate into lower returns. In Hong Kong, the figures are even higher.
Given the demand that we see from investors, we believe it is high time for Asia to close these gaps and unlock the capital that is needed to tackle the continent's sustainability issues.
First, financial institutions in Asia and globally must reduce confusion by establishing common standards and definitions for sustainable investing. If an investment is termed a stock or a bond, there is usually little debate as to its basic characteristics, no matter what the location or context.
The same cannot be said for sustainable investments. This is particularly true for those that are designed to generate a social or environmental impact, where there is often little transparency over how that impact is verified or assessed.
Second, providers should clearly state how their sustainable investments can generate similar levels of return to traditional equivalents in return for similar levels of risk. They must exhibit sufficient diversification - across geographies, industry sectors, and (where relevant) asset classes.
They must explain why their investments are expected to perform competitively - for instance, by paying greater attention to environmental, social, and governance (ESG) risks, or attractive investment opportunities designed to tackle sustainability challenges.
Third, fund managers need to offer more products across investors' favoured sustainable asset classes. For instance, development bank bonds (such as debt issued by the World Bank and the Asian Development Bank) offer attractive yields, high credit ratings, and an explicit focus on sustainable causes.
Yet only very few funds offer private investors exposure, despite a comparative lack of sustainable opportunities among high-grade bonds. Within equities, few asset managers can consistently generate a measurable social and environmental impact across an entire portfolio by engaging with companies and changing their ESG practices. Yet investors' demand for such an impact is clear.
Fourth, wealth managers must engage investors appropriately on this topic. Wealth management advice can help investors cut through terminology, separate products which deliver transparent impact from those that do not, find investments that are both profitable and aligned with their values, and fit them into an overall financial plan.
A sub-par approach - be that pushing an unsuitable sustainable investment on a client, or avoiding the subject altogether - will ultimately leave all parties disappointed.
As the world's largest wealth manager globally and in Asia, we have taken many of these steps already. We participate in industry-wide sustainable investing standards initiatives. We offer private investors development bank bond exposure. We have fund providers who engage companies to make an impact. We have clear strategies for generating compelling sustainable returns. And our advisers also discuss these initiatives with clients.
But sustainable investing is too big a field, and sustainability challenges are too great, for us to rest on our laurels - let alone do this on our own. The United Nations has set the world 17 Sustainable Development Goals for the year 2030, the last of which involves revitalising partnerships for sustainable development.
In the spirit of this final UN SDG, it is time for Asia's investors and institutions to work harder on profitable collaborations that will make the world a better place in 2030 and beyond.
- The writer is head of UBS Wealth Management Asia-Pacific