ESG on the rise in private banking

Sustainable investment assets in Asia may be modest relative to other regions, but this is starting to change as investors – particularly next generation and millennials – become more knowledgeable.

Domestic asset managers want to attract foreign capital that adheres to the principles of sustainable investing, while other factors that have led to increased interest include ESG regulations and standards, green stimulus policies and compliance with the UN’s Principles for Responsible Investment.

A report published by the Economist Intelligence Unit in February (Financing sustainability: Asia Pacific embraces the ESG challenge) found that more than two-thirds of investors in Asia Pacific intended to increase their allocations to sustainable investing over the next 12 months.

Kam Shing Kwang, CEO for J.P. Morgan Private Bank in Asia, and Diana Robinson, Head of Investments and Advice for the Private Bank in Asia, note that clients are looking for 100% sustainable investing solutions that create impact as well as robust financial returns and that there is also interest in thematic opportunities. So how does the bank source potential opportunities for clients in Asia Pacific?

“We have dedicated resources on the manager solutions and alternative investments due diligence teams that are responsible for the search and selection of investment managers focused on sustainable investments,” Robinson explains. “Our manager solutions team has utilized sustainable investment strategies since 2004 and our rigorous research process seeks to identify managers at the forefront of this development.”

Bank analysts focus on understanding sustainable, responsible and impact investing issues and industry trends. They are also required to be knowledgeable about leading market participants and thought leaders, as well as sourcing best-in-class managers who utilize investment philosophies and processes aligned with clients’ interests.

“Lastly, as part of our practice as a prudent investment manager and fiduciary to our clients, we have taken important steps to embed ESG analysis into the evaluation of all investment opportunities – not just those funds seeking to be on our sustainable investment platform,” says Kwang. “The teams’ capabilities in addressing the needs of our clients continue to evolve with the industry.”

J.P. Morgan Private Bank believes there are four approaches to effectively implementing sustainable investing and helping clients align investments with their values: exclusionary screening; environmental, social and governance (ESG) integration; thematic investing; and impact investing.

“These approaches may be used individually or combined to implement sustainable investing across the portfolio,” explains Robinson. “We work closely with clients to clearly define guidelines and ultimately devise strategies to fit their specific requirements. We also focus on customization and can develop and implement strategies tailored to clients’ missions, goals and investment objectives.”

She believes the power of sustainable investing can drive both long-term growth and positive impact and refers to the importance of supporting clients as their interest in this segment of the market grows.

“Governments are supporting sustainable growth trends environmental policies – for example, China’s green stimulus and Korea’s New Green Deal – as well as with ESG regulations and disclosures in Hong Kong, Singapore, Indonesia, Japan and elsewhere,” says Robinson. “We believe one can no longer be a long-term investor without integrating ESG considerations into investment analysis.”

Flows into sustainable funds continue to increase and global sustainable equities have outperformed traditional equities this year. A growing body of evidence shows that integrating ESG considerations into portfolio analysis can reduce risk by revealing more material data on portfolio companies.

Kwang observes that the momentum already existed pre-pandemic, but Covid-19 and its expected recovery has reinforced the view that sustainable investing can be a smart long-term investment strategy.

“In addition to the importance of including ESG analysis, we also see sustainability as an area for potential growth in investment portfolios,” Robinson continues. “For example, renewable fuels are very early stage – making up less than a fifth of the energy mix – and there are expectations for significant growth (40% share of electricity generation by 2030 and more than 60% by 2050).”

Demand is also growing for sustainably marked consumer products, particularly among the next generation, who are more willing to invest sustainably. Surveys indicate that for the vast majority of high net-worth millennials, a company's ESG track record is an important consideration in their decision about whether or not to invest in it.

J.P. Morgan Private Bank holds dedicated training sessions for next generation clients, which include a review of sustainable investing.

“Business owners and their next generations are very interested in making their businesses more sustainable and ESG-compliant to stay competitive,” concludes Kwang. 

“We work with our investment bank to support these clients on this journey, helping both the next generation and incumbent clients to understand the landscape and how they can invest sustainably to take advantage of longer-term trends, have a positive environmental and social impact, and achieve robust risk adjust returns.”