Investors’ demands as well as governments’ regulations will drive fund managers and fund selectors to step up in dealing with climate change issues, panellists told the Global ESG Summit, hosted by Bonhill Group, owners of Fund Selector Asia.
For an investment company, it is in their best interest to create sustainable solutions that generates sustainable income for their clients, Gareth Nicholson, chief investment officer and head of DPM of international wealth management at Nomura, told the panel.
“By looking at the long term and by making sure that the assets we are investing in will be around for the next 20 to 30 years, means that we’re giving what our clients initially want: a sustainable investment,” Nicolson said.
He pointed out there are many investment themes that meet the criteria of “sustainable solution”. Alongside the mega themes of climate change, rapid urbanisation and technological shifts, there are also electronic vehicles and green energy. But he stressed that investors should make diversified investments and take a broad view.
Agreeing with Nicholson, Lina Lim, managing director and regional head of discretionary and funds of Asia Pacific at HSBC Global Private Banking, said that the financial industry has a very important role to play in fighting climate change, as clients expect them to do so.
“When we go into a client meeting, we no longer just talk about the financial objectives of the investments, we must also talk about the sustainability objectives,” Lim said.
The investment industry has to think four or five years ahead, as more climate policies will be rolled out and consumer demand in favor of sustainability products increases. Our clients should be aware of new business opportunities as well as new operational risks, she said.
“As a wealth manager and as a fund selector, it’s a very natural process for us to be part of this ecosystem. And it also aligned to our stewardship role and fiduciary duty in making informed investment decisions,” Lim added.
However, it is not just client demand, but regulation that is driving the investment industry to participate in the fight against climate change, Mitch Reznick, head of research and sustainable fixed income at Federated Hermes, said.
“I don’t think you can overlook what government is doing and its influence on the asset management industry. For example, the nationally determined contribution (NDC) commitments lead to regulation, which lead to steering industry in certain areas,” Reznick said.
In fact, governments and regulators are creating secular change in the economy. There will be winners and losers as a result, he said. The investment industry’s role is to direct capital toward the winners that also serve the purpose of decarbonizing the economy and providing solutions that the investors want.
“Our role is to deliver financial returns that also create solutions that serve the environment and society. In effect, it is to do good and do well,” he added.
Nevertheless, Jess Williams, analyst of responsible investment at Columbia Threadneedle Investments, stressed that the biggest incentive for adaptation by the investment industry, is that clients are asking it to move in this direction and that their demand for ESG products is strong.
“Another driver would be that a lot of our institutional clients have join the ‘Net Zero Asset Managers initiative’. So that puts a requirement on us to meet their decarbonization targets for the segregated mandates,” Williams said.
The transition is happening, and the investment industry needs to make the most of the opportunities that are presenting themselves, she added.