The rich across the globe nurture big ambitions for sustainable investing involving the type of portfolios that help combat climate change or tackle societal problems. But the reality is complex.
More than 80 percent of affluent and high-net-worth individuals in Hong Kong, mainland China, Singapore and the UK say sustainable, environmental and ethical issues matter. Less than a third of their investments currently consider ESG (Environmental, Social and Governance) factors, while more than half still believe they have to sacrifice returns to invest sustainably, according to a survey of 1,000 people published by HSBC Asset Management and Core Data Research.
Investing in a sustainable way is one of the hottest trends in finance, one that’s only been accelerated by the coronavirus pandemic.
Global funds targeting ESG attracted record inflows last year. Major investors like BlackRock and Vanguard Group have committed to cutting the net greenhouse-gas emissions of their portfolios to zero. And some of the best-performing investments have been tied to the green economy such as US-based electric carmaker Tesla or Chinese battery makers.
But it can be tough to execute, even for some of the very richest people on the planet. Founder of American software giant Microsoft, Bill Gates, decided to divest from fossil fuels in 2019, but the actual process of separating the world’s third-largest fortune from oil and gas is taking years and hasn’t prevented Mr. Gates from investing in other carbon-heavy businesses.
It’s also a challenge when taking into account private equity or hedge fund investments, where a third-party manager may not adhere to the same standards. Meanwhile, cryptocurrencies have a difficult relationship with climate. The University of Cambridge estimates that mining, the computerized puzzle-solving required to verify all Bitcoin transactions, consumes about 144 terawatt-hours of electricity annually.
Focus on sustainability
The results from the HSBC study come after a UBS Group survey last year showed the new generation of wealthy people prioritizes financial returns over do-good strategies just as much as their parents did.
Still, almost half of those surveyed in the new study anticipate their portfolios will be fully sustainable in the next three to five years.
“As investors find ways to put their principles into action, it’s promising that nearly half want their portfolios to be fully composed of sustainable investments,” said Nicolas Moreau, chief executive officer of HSBC Holdings Plc’s asset-management unit. “The gap between investors’ intentions and their actions also indicates a strong growth path for sustainable investments.”
More than two-thirds of the survey respondents said they’re also interested in investments that will help the economic recovery from the COVID-19 crisis.