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Company engagement encourages sustainability

Instead of divesting from companies that do not operate sustainably, it is better to persuade companies to adopt sustainable practices, argues St James’ Place (SJP).
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A recent study by SJP reveals that 37% of surveyed investors in Hong Kong are prepared to actively divest from companies that are not operating responsibly.

Yet, the wealth manager believes pulling money away from those companies is not the best way to adopt sustainable investing.

“At the moment we are more pro-engagement than divestment. While 37% of investors would consider divesting from investment, there are still 63% who wouldn’t do it. Therefore, that takes away the effectiveness of divestment in our view,” said Angelina Lai, head of division of Asia investment at SJP, during a media briefing.

She noted that many of the “less sustainable” companies are in the energy sector, which have the capacity to invest in infrastructure during the energy transition.

“It is more important, we believe, to engage with companies in order to influence them in their decision in the transition towards more ESG and more green productions,” Lai added.

Instead of only looking through annual reports to see if the business operation is sustainable, fund advisors should also talk to company boards and persuade them to adopt more sustainable operations.

The “Wealthy, Healthy Planet” study interviewed over 1,000 affluent to high net worth investors aged between 25 and 54 earlier this year.

The research shows that over 60% of Hongkongers see ESG and sustainability as an important factor when investing, and the percentage is even higher among young investors and with wealthier investors.

False perceptions

Despite acknowledging the importance of incorporating ESG in investment strategies, 55% of the respondents believe they need to compromise returns if they want to invest sustainably, while 42% think the performance of sustainable investment is barring them from investing more responsibly.

“More strides have to be made towards addressing the false belief that returns must be compromised in order to invest responsibly,” said Lai.

“With increased attention on sustainable corporate practices, we will see an increasing correlation between sustainability and financial performance in the future.”

SJP argues that investors should also look at long-term investments, when ESG funds are more likely to outperform their conventional peers in the coming five to 25 years.

Investors surveyed also identified other barriers, including a lack of knowledge (48%), difficulty in accessing knowledge (43%) as well as a lack of sustainable investment options (37%).

“Closing this gap will require financial advisers to have the necessary skills and understanding of integrating ESG considerations in their investment decisions, and when advising clients as a first step to ensure that the long-term interests of investors are protected and maximised,” said SJP.

SJP admits that it is difficult for individual investors to assess the sustainability of companies by reading their annual reports and spot potential greenwashing. Therefore, it is important for fund managers to sign up to the UN Principles for Responsible Investing (UNPRI), which ensures they will adopt the set of sustainability guidelines when investing.

UK-based SJP has over $197bn of assets under management. All of its third-party fund managers have signed up to the UNPRI, and the company has committed to achieving net-zero in carbon emissions by 2050.

Part of the Mark Allen Group.