In four main Asia markets, investors are expected to up allocations to sustainable investments to reach 23% on average by 2021 from the current 19%. The interest is led by China’s investors, with an expected allocation of 23%, according to the study that surveyed HNWIs from China, Hong Kong, India and Singapore.
In each market, 100 individuals with a minimum of $1m in investments excluding real estate were polled.
Currently 86% of the respondents claim they are engaged in sustainable investing. However, their motivation is primarily profit-related.
Sixty-seven percent of all respondents indicated “better returns” as the motivation for investing in sustainable-themed products versus 60% for “helping create a better future”. This is especially true for HNWIs based in Hong Kong and China, where around 70% stated the motivation was better returns.
“There is a significant knowledge gap among the respondents around what sustainable investing entails, as well as the returns and impact it can deliver,” the bank said.
Source: Standard Chartered
Investors’ return expectations are consistent with their motivation. Around 60% of the respondents believe that the rate of return of sustainable investments is higher than mainstream holdings, with China leading with this belief.
Source: Standard Chartered
The survey results are not surprising as 70% of the respondents were classified in the study as “value seekers” and not “altruistic investors”.
The study categorised only 16% of the respondents as altruistic investors, meaning motivated by the desire make a positive impact on society and more willing to accept a financial trade off between doing good and generating returns.
While a number of investment professionals have argued that sustainable investments provide better returns – citing mostly academic findings, there is justified scepticism around claims that sustainable or impact products outperform the broader the market.
In addition, some have indicated that sustainable investments are just on par with traditional investments.
For example, Mario Knoepfel, UBS Wealth Management’s Hong Kong-based head of sustainable investing advisory for Asia-Pacific, said that in the last 26 years, the average return and volatility of the S&P 500 is very similar to those of the MSCI KLD 400 Social Index, which includes 400 US stocks with high ESG ratings and excludes companies whose products have negative social or negative impact.
On a three-year basis, the S&P 500 Index returned 36.88%, which is very close to the MSCI KLD 400 Social Index’s 36.88%, according to FE data. Similarly, the MSCI World returned 26.9%, versus the MSCI World ESG Leaders’ 25%, according to FE data (see below).
HNWIs snub ESG funds
The expected increase in sustainable investments, however, will not come mainly through mutual funds.
Nearly half of all respondents indicated that their top sustainable investment solution is through investing directly in equities, versus the 37% in mutual funds with an ESG focus and 28% through a discretionary portfolio with an ESG focus.
This is further magnified in Hong Kong, where only 19% of investors prefer mutual funds and 17% in discretionary portfolios as a main channel for sustainable investments.
Source: Standard Chartered
Sustainable at best matches the performance of the broader market
Source: FE. The three year performance of the S&P 500, MSCI World, MSCI KLD 400 Social and MSCI World ESG Leaders indices
