Four out of five investors across Asia’s main markets believe in ESG but just one in four are considering it in their portfolios, a new HSBC study shows. As ESG mandates flood into capital markets, where are the disconnects?

A new survey taken earlier this year by HSBC Asset Management shows that roughly half of investors in Asia’s main markets of Hong Kong, Singapore, and mainland China believe that their portfolios will be totally sustainable in the next three to five years, but few, it appears, know how they are going to get there; and only a quarter currently are explicitly considering ESG-qualified investments.

The majority of investors in those markets say that the pandemic has raised their awareness of environmental, social and governance issues and has spurred them to re-evaluate their investment outlook. Multi-asset ESG approaches are seen as the best way forward in Hong Kong and Singapore, while thematic funds are the preferred choice for mainland Chinese investors, the study found.

HSBC’s asset management arm conducted the survey in January and February to look at attitudes towards sustainable investing among mass affluent and high net worth investors, where client needs are diverging between Hong Kong, Mainland China, Singapore and UK markets.

Management on the move
The bank is in the midst of transferring board level execs from its London Canary Wharf headquarters to hubs in Singapore and Hong Kong as part of lengthy restructuring plans and a pivot back to its Asian banking roots. This week, the CEO announced that several top figures, including Greg Guyett, co-head of global banking and markets, Nuno Matos, chief executive of wealth and personal banking, and Barry O’Byrne, chief executive of global commercial banking, were leaving. Added to this list, and ending speculation, Nicolas Moreau as head of asset management, is also reportedly departing London.

HSBC's study of ESG uptake in Asia comes at a strategic time for the global lender and at a time when the industry is backing sustainable investing as a panacea for fighting climate change and other global risks, but a lack of suitable products and limited investment choice are given as the main barriers for ESG reaching critical mass in the region. Second, there are still lingering reservations about its abitlity to deliver returns, most strongly felt among mainland Chinese investors.

Accelerating ESG adoption rests on several factors rapidly aligning, the bank said. Namely “products matching risk and return goals, a wider range of ESG investment vehicles and strategies, government incentives, and better information on investment performance and ESG issues." That last one is where advisors need to step up their knowledge and services approach.

Not less, because a recurring theme of these surveys is the high proportion of clients who say that they don’t know how to approach ESG. This was the case among nearly 60 per cent of investors polled by HSBC.

“While awareness for ESG issues has intensified, our survey still revealed a significant gap between investors’ intentions and actions in sustainable investing,” CEO for Asia Pacific at HSBC Asset Management, Pedro Bastos, said.

"This signals promising future demand, which we need to support today through education, product development, and investment strategies that better embed ESG principles to meet investor goals," he said.

Investors and advisors need to be convinced that these goals can be met, he added. This has already been shown by the fact that equity funds outperformed their traditional peers in 2020.

ESG themes gaining most traction
The survey reveals that the top three ESG topics across the three main Asian markets were sustainability (62 per cent), environmental impact (57 per cent), and climate change (52 per cent). Mainland Chinese investors deviated a little, placing consumer protection (50 per cent) slightly above climate change (47 per cent) in their priorities.

However investors' ESG priorities didn’t parry with those of advisors, who weighed environmental impact (77 per cent), climate change (66 per cent), and clean/renewable energy (65 per cent) as their three top investment priorities.

It should to be said that these preferences may merely reflect the funding vehicles that advisors have access to or are incentivized to promote to clients.

Mainland Chinese and Hong Kong investors were the most exercised by a paucity of sustainable choices, but close to half of investors across the three main Asian markets said this was a major concern.

More specifically, investors (a third polled) said that they didn’t want to put limits on the range of sectors or companies they were able to invest in, and around 30 per cent said the high cost of ESG options was also a hurdle. A third in Hong Kong said they simply have not been offered ESG-aligned products. Moreover, advisors said client weren't demanding ESG products. So who is right?

The conflicting picture suggests that better communication between advisors and clients is a good place to start tackling the choke points.

“Clients are clearly calling for more tailored and targeted ESG products and we will continue to expand our product suite to meet their growing demand, particularly among high net worth and ultra-high net worth clients,” Bastos said.

The asset house currently offers lower-carbon funds in Hong Kong, mainland China, Singapore and Taiwan, and has launched global equity climate change funds in India, Hong Kong and mainland China.

Study data: HSBC Asset Management Sustainable Investing Survey was conducted by Core Data Research between 1 January and 28 February 2021, with 250 investors in each market: Hong Kong, mainland China, Singapore and the UK (120 with net investable assets from $250,000 to $500,000; 80 with $500,000 to $1million; amd 50 with $1million or above) as well as 100 advisors in each market with average assets under advice of between $100 million and $500 million.