Investment products with an ESG-theme have proven resilient during the market downturn caused by COVID-19, and PB CEOs see the increasing client demand for sustainable investment as a long term trend.
In APB Leaders Week Webinar Series: Sustainability Now?, Tan Siew Meng, regional head, HSBC Private Banking, Asia-Pacific and Arnaud Tellier, CEO, Wealth Management Asia Pacific, BNP Paribas Wealth Management, discussed sustainable investment and shared the progress made by their banks in advising clients in Asia to make investments more sustainable and profitable.
The following are excerpts:
Does COVID-19 amplify the case for sustainable investment?
Arnaud Tellier (AT): “Maybe it is a bit too early to tell whether it is related to the COVID crisis, but at least the existing trend [of fund inflows towards ESG related investments] has continued at the same pace.”
“Sustainability will be the silver lining — or the green lining — of this pandemic. It would certainly accelerate the sustainability trend that is already emerging and it looks rather obvious that sustainability will be quite important from the risk-return point of view.”
“During the crisis, ESG related portfolios and DPM mandates have outperformed all other mandates. And moving on, if you look at the world after the crisis — digitalisation, onshoring of supply chains, reduced business travels — these all have an impact on sustainability and on the way we look at investments.”
Tan Siew Meng (TSM): “I think what has been happening in the world [since the pandemic started] has triggered a deep reflection about how we can change the way we live to create less pollution. This has resonated well with clients in our conversations.”
“We have recently launched our first impact PE fund that seeks to achieve a positive social and environmental impact, alongside competitive financial returns. In conversations with clients, when introducing them to this particular PE fund, their responses confirm that clients are indeed looking further and widening their scope, when considering what sort of investments they should be undertaking during this period.”
What is the priority of sustainability in your bank at the group level?
AT: “It actually started a long time ago — I would say more than 10 years ago — when the bank decided to put sustainability at the heart of its strategy. BNP Paribas has indeed expressed clearly and loudly its desire to be a sustainable finance leader.”
“We are able to analyse the environmental footprint of our entire loan portfolio of companies and of individuals, and we are able to direct our activity and our lending so that it aligns progressively with the objectives of the Paris Agreement.”
“To give a concrete example: since 2017, BNP Paribas has not financed any new single coal-fired power plants project anywhere in the world and we do not advise in any projects related to coal-fired power plants. And not only this, but we have adopted a cut-off date, beyond which our electricity-producing customers are no longer able to use coal. So, we are extremely strict in the way we are doing business.”
TSM: “Within HSBC, we actually have a massive focus on sustainability which supports the communities that we serve. And it is increasingly important to our clients and it represents a substantial growth opportunity for us.”
“Since 2012, HSBC has signed up to the Principles for Sustainable Insurance [of the United Nations Environment Programme Finance Initiative (UNEP FI)] and became a founding member of the green bond principles in 2015. And we also joined the Sustainable Development Investment Partnership in 2016. Why is it that we are doing all this? It’s because as a major international business, we know that we will have an impact on people all over the world. This is not limited to our customers but [extends] to our employees, suppliers, regulators, investors and wider communities that we operate in. It is our duty to manage the impact of our business on our environment and this is critical to the business’ long term success.”
What is the unique role of the PB business in sustainability investment?
AT: “Obviously, private banking must be at the forefront of the strategy because we are fortunate to deal with clients that are influential, that have the influence in their business or with their money to drive change.”
“The tipping point was in 2016. With the Paris Agreement, we realized that really, we had to drive the change together with our clients and some of them were putting pressure on us to do more in this field. That’s when we decided to have a senior advisor responsible for sustainability, and in investments where we decided to have a fully fledged strategy that would include our entire investment universe.”
TSM: “In 2018 we established within the PB a sustainable investment forum. And this is really to drive the development of the investment proposition for our clients. This group of people within the PB works closely with our sustainable investment expert group, which is the wider resource that we can tap into to build a systematic framework for sustainable investment across the various asset classes.”
“We had a client in her late 20s, who joined the sustainability leadership programme. She is helping the family in running the family business as well. The family business is in construction and building materials. After she had gone to this particular programme, she modified the business to make use of sustainable construction materials. So this is a really good example of how the next-gen is being able to influence and have a major impact on sustainability.”
What’s your bank’s methodology in measuring sustainability in investments?
AT: “We need to be able to prevent this impression of greenwashing or impact washing. So, a methodology is absolutely crucial. We have decided to align our strategy with the UN’s Sustainable Development Goals (SDG). I think they cover really all the needs in terms of sustainability. Then we have decided to have a fairly sophisticated rating approach. In cooperation with our asset management arm, we use clovers instead of triple As double As, and in a scale of one to 10, we are rating all our products in terms of sustainability. Zero means no integration of SDG, nine to ten is impact and in between are ESGs and SRIs [Sustainable and Responsible Investment]. It’s a fairly complex and robust methodology.”
“At this stage, about 50% of our investment universe is rated. Our objective is to reach 90% at year-end and it is not that simple because we need to overlay our own due diligence with external factors that we are getting from specialised firms and consultants. The objective is to reach 90% by year-end and 100% some time at the beginning of 2021 — when we’ll be able to have a full ESG rating of our investment universe, including equities, bonds, funds, but hedge funds, private equities and structured products as well.”
TSM: “Over the past two years or so, we have invested in new resources to enhance our ESG product capabilities in the form of conducting proper product due diligence, defining ESG standards for investment solutions that we will position as sustainable, to cater to different client needs. And suffice to say, we have a very stringent product due diligence process that aims to identify and basically deliver the best-in-class sustainable product to meet the requirements.”
“If you look at funds, for example, we have only selected seven sustainable funds, and 17 ETFs and this is in view of the hundreds of fund choices out there in the market that are of varied qualities. So, I say this really attests to the fact that we are highly selective to ensure that these are the right ones with quality and we are absolutely picking the best-in-class in funds as well as ETFs.”