ENVIRONMENTAL, social, and governance (ESG) investing and philanthropic endeavours have been gaining momentum in Asia in recent years. More money has been allocated to both, and awareness of the ‘doing well by doing good’ concept is increasingly resonating with investors across the region.
As green finance continues to grow and develop in sophistication, and with the Covid-19 pandemic likely to generate even greater interest in ESG investments, philanthropy is also transforming. Where as in the past a wealthy client may simply write a cheque, that benevolence is now shifting away from a passive giving process towards a more sustainable model, such as by helping beneficiaries develop skill sets to help themselves and ‘pay it forward’.
Clearly philanthropy and ESG investing are fundamentally different concepts, with each bringing their own benefits to society. Whilst ESG investing has a dual objective of doing good and achieving financial outperformance, philanthropy’s precedence lies in creating a positive impact. ESG investing also tends to take a broader consideration of its three core issues compared to philanthropy, which usually focuses on conventional isolated pillars such as education and poverty relief.
Marc Lansonneur, managing director, head of managed solutions, balance sheet products and investment governance at DBS wealth management sees investment in ESG-compliant products and firms as a long-term approach. Citing recent data showing that ESG investments have continued to outperform traditional portfolios even in the current environment, he is confident that the best ESG rated products will be the ones to benefit when markets return to post-Covid-19 stability.
Commenting on the fallout from the pandemic, Lansonneur says: “I think it will create more or even speed up awareness and interest in ESG investing, and accelerate the current trend we've been experiencing.”
While he is well-versed in ESG investing and philanthropic ventures, Lansonneur shares his concern that some investors are still unsure or confused as to how to differentiate between the two concepts. Many mistakenly perceive them to be the same, and he regards education as key in overcoming investors’ confusion.
Citing growing evidence of the correlation between robust ESG practices and strong corporate financial performance, Lansonneur debunks the misconception that investing in ESG-compliant products would discount performance. “ESG investing will actually provide you with better insight, and a stronger chance to outperform in your portfolio,” he explains.
Along similar lines, Mario Knoepfel, APAC head of sustainable and impact investing advisory, UBS Global Wealth Management, says investments that support a sustainable future will likely benefit financially over the long term.
“Here in Asia, we have witnessed a rising trend amongst our clients in sustainable investing over the years. Entrepreneurs make up the majority of our Asian clients (70%), and they are becoming more focused on sustainability because they have found that sustainable investments can generate equal or superior investment returns when compared to traditional investments,” he explains.
Knoepfel cites the bank’s 100% sustainable investing cross-asset discretionary mandate which has grown to over US$1 billion in APAC. It currently has a share of close to 20% of all mandates in the region. This means on a net sales basis, more than one in six new dollars added to the bank’s mandate book is a sustainable investing discretionary mandate.
UBS’ sustainable investing discretionary portfolio, which allows the bank to manage the money for a fee, returned more than 18% last year for a balanced strategy that allocates about 50% to equities. These sustainable investments have seen strong performance in recent years and have actually been outperforming comparable traditional portfolios.
With ESG investment clearly now in the mainstream, and with regulators in Hong Kong and Singapore aiding the sustainability push, investing in ESG is expected to become even bigger in 2020.
At the same time, philanthropic giving had grown to record levels in developed markets like the US prior to the Covid-19 pandemic, and was on a steep rise in other regions including Asia where the generational transfer of wealth is now also a factor. “The dollar amount donated to charitable causes from wealthy individuals is staggering. Yet most people make donations without setting any expectation for a return,” says Julie Koo, head of Citi investment management sales, Asia-Pacific, Citi Private Bank.
However, that mindset is now changing. There is a growing movement among the next generation of high-net-worth individuals in Asia to roll their sleeves up and get actively involved in the philanthropic venture or social enterprise they are financially invested in. This represents a dramatic change to the approach their parents or grandparents took which usually entailed a donation or cash contribution, but no follow-up to see how the funds were utilized.
Koo points out that with the growth in impact investing, measuring impact and investment performance, which has been lacking in charitable giving, is becoming more achievable. This is attracting more people to put their philanthropic capital to work in more productive ways, whether that is seeking out direct investments in social enterprises, choosing ESG-related investment products, or making investments aligned to sustainable goals.
Koo says philanthropy and ESG investments can stand on their own, but they can also harmoniously co-exist and benefit one another. “Philanthropy has a natural tie to ESG investments by virtue of the causes they tend to support: education, human services, health, public society, animal welfare and the environment. Individuals and institutions often consider their values in order to set their “giving” mission as well as define their investment policies,” she adds.
According to Veronica Shim, CEO and founder of Envysion Wealth Management in Singapore, there is no binary classification of philanthropy and ESG as an investment or charity act and these are not mutually exclusive - it depends on the end-goal and the actions and processes taken to achieve it.
Shim says there are challenges faced by focusing entirely on either end of the spectrum. For charity organizations that operate entirely on philanthropy, it is difficult to ensure sustainability of funds and outreach efforts, which in turn limits the extent of its positive impacts. On the other hand, purely for-profit businesses that disregard any social responsibilities may also lag behind, especially as consumers and investors become increasingly socially conscious with their purchases and or investments.