Seek “good” returns for a better world

We favour ESG funds that are both growth and income-oriented, as part of the barbell strategy.
Chief Investment Office17 May 2019
Photo credit: AFP Photo

What happened?

Global sustainable-investing assets grew 34% to USD30.7t in 2018 from USD22.9t in 2016, according to the latest data by Global Sustainable Investment Alliance (GSIA), published in April 2019 (Figure 1). In Asia, the Global Sustainable Investment Review revealed that there had been a notable 16% increase in sustainable-investment assets between 2014 and 2016. This reaffirms our view that the inflows into sustainable investing is structural.

Investor interest in “responsible investment products” is increasing from institutional investors and wealth management clients globally. These products typically factor in environmental, social, and governance (ESG) measures. The United Nations (UN)-backed Principles for Responsible Investment also show a shift toward the incorporation of ESG factors in investment decision-making.

There is immense growth potential for sustainable investments, both regionally and globally. 66% of global consumers are willing to pay more for a sustainable brand and 73% of Millennials are prepared to pay extra for a sustainable offer, according to studies by Nielsen. In 2017, a DBS research collaboration with the UN Environment Programme (UNEP) found that in the Association of Southeast Asian Nations (ASEAN), there was demand for an estimated USD3t of investment to be pumped into “green investments” from 2016-30.

What does this mean?

We see huge growth opportunities in sustainable investing in Asia ex-Japan, driven by: i) the currently low penetration of sustainable investing; and ii) the Millennial wave. Assets managed under responsible-investment strategies remain extremely low in Asia ex-Japan, at only 0.8% of total assets under management (AUM) in 2016 compared to 53% in Europe, according to GSIA (Figure 2). Indeed, investors in Asia ex-Japan have not caught up in a big way, compared to the rest of the world. Further, over USD30t of wealth will be transferred from Baby Boomers to 90m Millennials over the next few decades. In Asia, about 35% of wealth will be in the hands of Millennials over the next five to seven years, resulting in the highest rate of change in any region. According to several global surveys, Millennials are keen on sustainable investing. In fact, investors from this group are nearly twice as likely to invest in companies or funds which target specific social or environmental outcomes. Sustainable investing is becoming increasingly compelling, given the increasing awareness among them.

What should you do?

Build exposure in ESG funds within the barbell strategy. Select ESG funds which sit on both ends of our barbell portfolio – that is, superior growth-oriented funds on one end, and income-oriented funds on the other.

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