Can you drive positive change without sacrificing portfolio performance?

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This is a sponsored article from Allianz Global Investors.

Across the world, the COVID-19 pandemic has thrown a spotlight on environmental, social and governance (ESG) issues such as climate change, renewable energy, income inequality and water pollution. Take Singapore, as an island nation; it is more vulnerable to climate change and other challenges than many other countries. Singapore has been an early adopter of clean energy by using natural gas to generate 95% of its electricity1. Addressing air pollution, Hong Kong introduced a feed-in tariff (FiT) to encourage the shift towards renewable energy2. To protect its beaches and ocean, a significant source of tourism revenue, Indonesia has banned the use of single-use plastics in Bali to counter plastic pollution in the sea3.

Over the years, investors have come to realise that they too can do their bit for planet earth and drive positive change by investing in companies with higher ESG ratings and business practices. For example, by choosing to invest in clean energy companies instead of those using coal, which leaves a high carbon footprint, investors may create a potential positive climate impact and pressure companies to develop a more sustainable business. Companies focused on improving their ESG practices will receive greater investor interest as they may be the resilient winners of the future, with a potential of giving ESG investors superior long-term returns.

Today, ESG investing is readily embraced by both by investors and asset managers like Allianz Global Investors. Investors increasingly acknowledge that ESG factors have a real business impact on investment financial value, growth prospects, resiliency, and risk. Investments with strong ESG practices are more resilient, offering attractive long-term returns4.

Furthermore, investors recognise sustainable investing may produce market competitive5 or higher returns 6as ESG analysis reveals hidden risks of companies7. Academic research has shown outperformance8 opportunities and a largely non-negative9 relationship between ESG factors and investment returns with potentially less risk at times10.

68% of Asia-Pacific investors surveyed by the Economist Intelligence Unit said their sustainable investments performed better than traditional equivalents11, while over 60% of private millennial investors in Asia expect sustainable investments to outperform mainstream investments12.

Following institutional investors’ lead, retail investors are increasingly allocating to sustainable investments to fulfil dual goals of positive ESG impact and attractive returns. Demand from both institutional and retail investors will likely accelerate the growth of Asia’s €2.5 trillion ESG AUM13.

ESG investing today is a major investment strategy with AUM of over €26.8 trillion, representing 38.7% of traditional asset AUM14.

Although some still misunderstand it, ESG-linked investing is neither a niche investment strategy, nor side philanthropic dabble requiring investors to sacrifice returns.

ESG portfolios are compelling to investors to achieve multiple goals of a positive societal impact with potentially higher risk-adjusted returns and lower risks while maintaining portfolio diversification.

As a pioneer in ESG investing for 20 years, Allianz Global Investors shares your goal of investing sustainably and shaping our world for a better future, while achieving competitive returns. Besides being ranked in the top 2% of global equity funds with a Morningstar rating, we have been awarded with the top A+ ranking for four consecutive years by the Principles for Responsible Investment (PRI) Association.

The power to create a sustainable world is in our hands. Learn more on how the Allianz Global Sustainability fund can deliver positive returns in more ways than one.

Think sustainable investing. The returns are measured in more ways than one.

Visit sg.allianzgi.com/sustainability to find out more.

Source: All data are sourced from Allianz Global Investors as at 30 September 2020 unless otherwise stated.

1.https://www.ema.gov.sg/Piped_Natural_Gas_and_Liquefied_Natural_Gas.aspx
2.https://hongkongbusiness.hk/commercial-property/commentary/hong-kong-catching-other-apac-markets-embrace-sustainability
3.Single-use plastics source: https://www.weforum.org/agenda/2020/07/melati-wijsen-isabel-youthtopia-environment-activist-changemaker/
4.https://www.ey.com/en_gl/financial-services-emeia/three-ways-esg-factors-can-make-portfolios-more-resilient-post-covid-19
https://www.gic.com.sg/thinkspace/sustainability-an-essential-focus-for-long-term-investors/
https://www.wbcsd.org/Overview/News-Insights/WBCSD-insights/Increasing-risk-management-resilience-through-ESG-investing
https://www.theedgemarkets.com/article/cover-story-resilience-amid-turmoil
5. Journal of Sustainable Finance https://www.tandfonline.com/doi/full/10.1080/20430795.2015.1118917 “Investors, on average, are unlikely to harvest the existing ESG alpha after implementation costs. However, it can be argued, sophisticated investors are more likely to do so (Grossman and Stiglitz 1980; Hoepner 2013; Nagy, Kassam, and Lee 2015). Thus, our results underpin previous findings:  in the worst case, investors in ESG mutual funds can expect to lose nothing compared to conventional fund investments (Hamilton, Jo, and Statman 1993; Humphrey and Tan 2014; Revelli and Viviani 2015).”
6.Journal of Sustainable Finance https://www.tandfonline.com/doi/full/10.1080/20430795.2015.1118917
Conclusion: Still more than 2,100 other – in particular company-focused – empiric studies suggest a positive ESG relation. ESG outperformance opportunities exist in many areas of the market. In particular, we find that this holds true for North America, Emerging Markets, and in nonequity asset classes
7.Journal of Sustainable Finance https://www.tandfonline.com/doi/full/10.1080/20430795.2015.1118917
We argue that ESG portfolios should be expected to exhibit lower correlations to corporate financial performance (CFP) and less positive findings for the following three reasons. […] https://ap.allianzgi.com/en/home/insights/sustainability/myth-busting   See Myth 1
8.Journal of Sustainable Finance https://www.tandfonline.com/doi/full/10.1080/20430795.2015.1118917
Conclusion: “ESG outperformance opportunities exist in many areas of the market.”
9.Journal of Sustainable Finance https://www.tandfonline.com/doi/full/10.1080/20430795.2015.1118917
“The results show that the business case for ESG investing is empirically very well founded. Roughly 90% of studies find a nonnegative ESG–CFP relation. More importantly, the large majority of studies reports positive findings.”
10.Journal of Sustainable Finance https://www.tandfonline.com/doi/full/10.1080/20430795.2015.1118917
“We argue that ESG portfolios should be expected to exhibit lower correlations to CFP and less positive findings for the following three reasons. […]”
https://ap.allianzgi.com/en/home/insights/sustainability/myth-busting   See Myth 4. This is a rephrasing and combination of the academic research points in Myth 4
11.https://fundselectorasia.com/reports-asia-demand-for-green-investments-soars/
12.Source: BCG Global Asset Management 2018 and BCG Global Asset Management Market Sizing Database (2016), (2013); GSIA (2014), (2016), (2018)
13.Allianz Global Sustainability leaflet page 2. “ESG is growing in significance”. First bullet point. If there’s additional demand from retail in addition to institutional, it logically follows overall demand is expected to grow. https://www. internationalinvestment.net/ news/4009209/investor-demand- esg-grow-2020-outlines-cerulli
https://www.ftadviser.com/ investments/2018/02/28/retail- investors-find-comfort-in-esg- investing/
14.BCG Global Asset Management 2018 and BCG Global Asset Management Market Sizing Database (2016), (2013); GSIA (2014), (2016), (2018).
Allianz Global Investors, “Institutional Investor Survey”, as of April 2019.
Standard Chartered Private Bank, “Sustainable investments on the rise in Asia”, as of 31 May 2018.
MSCI, “ESG investing is here to stay”, as of 12 February 2019.

Information herein is based on sources we believe to be accurate and reliable as at the date it was made. We reserve the right to revise any information herein at any time without notice. No offer or solicitation to buy or sell securities and no investment advice or recommendation is made herein. In making investment decisions, investors should not rely solely on this publication but should seek independent professional advice. However, if you choose not to seek professional advice, you should consider the suitability of the product for yourself. Past performance of the fund manager(s) and the fund is not indicative of future performance. Prices of units in the Fund and the income from them, if any, may fall as well as rise and cannot be guaranteed. Distribution payments of the Fund, where applicable, may at the sole discretion of the Manager, be made out of either income and/or net capital gains or capital of the Fund. As a result of the payment, the Fund’s net asset value is expected to be immediately reduced. The dividend yields and payouts are not guaranteed and might change depending on the market conditions or at the Manager’s discretion; past payout yields and payments do not represent future payout yields and payments. Investment involves risks including the possible loss of principal amount invested and risks associated with investment in emerging and less developed markets. The Fund may invest in financial derivative instruments and/or structured products and be subject to various risks (including counterparty, liquidity, credit and market risks etc.). Past performance, or any prediction, projection or forecast, is not indicative of future performance. Investors should read the Prospectus obtainable from Allianz Global Investors Singapore Limited or any of its appointed distributors for further details including the risk factors, before investing. This advertisement has not been reviewed by the Monetary Authority of Singapore (MAS). MAS authorization/recognition is not a recommendation or endorsement. The issuer of this publication is Allianz Global Investors Singapore Limited (12 Marina View, #13-02 Asia Square Tower 2, Singapore 018961, Company Registration No. 199907169Z).

 

This is a sponsored article from Allianz Global Investors.

DISCLAIMER
Information herein is based on sources we believe to be accurate and reliable as at the date it was made. We reserve the right to revise any information herein at any time without notice. No offer or solicitation to buy or sell securities and no investment advice or recommendation is made herein. In making investment decisions, investors should not rely solely on this advertisement but should seek independent professional advice. However, if you choose not to seek professional advice, you should consider the suitability of the product for yourself. Past performance of the fund manager(s) and the fund is not indicative of future performance. Prices of units in the Fund and the income from them, if any, may fall as well as rise and cannot be guaranteed. Distribution payments of the Fund, where applicable, may at the sole discretion of the Manager, be made out of either income and/or net capital gains or capital of the Fund. As a result of the payment, the Fund’s net asset value is expected to be immediately reduced. The dividend yields and payouts are not guaranteed and might change depending on the market conditions or at the Manager’s discretion; past payout yields and payments do not represent future payout yields and payments. Investment involves risks including the possible loss of principal amount invested and risks associated with investment in emerging and less developed markets. The Fund may invest in financial derivative instruments and/ or structured products and be subject to various risks (including counterparty, liquidity, credit and market risks etc.). Past performance, or any prediction, projection or forecast, is not indicative of future performance. Investors should read the Prospectus obtainable from Allianz Global Investors Singapore Limited or any of its appointed distributors for further details including the risk factors, before investing. This advertisement has not been reviewed by the Monetary Authority of Singapore (MAS). MAS authorization/recognition is not a recommendation or endorsement. The issuer of this advertisement is Allianz Global Investors Singapore Limited (12 Marina View, #13-02 Asia Square Tower 2, Singapore 018961, Company Registration No. 199907169Z).

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