How can Hong Kong Leverage the Recent Sustainable Finance Drive and Turn Momentum into Action?

2018-06-15

Earlier this year the Hong Kong Government announced the world’s largest sovereign green bond at HK$100 billion, as well as a support scheme for other green bond issuance. Seven corporate green bonds have been issued to date, and the World Bank has issued its first Hong Kong Dollar green bond, demonstrating that there is a growing green investor base in Hong Kong.

The success of these green bonds and a rising generation of engaged investors and stakeholders have given Hong Kong’s sustainable finance community a moment of opportunity. How can private investors and the finance industry make the best of this opportunity?

In our first SFi Salon – a curated discussion between industry players and thought leaders – we will be looking at this sustainable finance momentum and try to get a sense of the challenges and opportunities faced by private investors who seek out sustainable investments. Here are the guests:

Mario Knoepfel, Specialist, Sustainable and Impact Investing, Asia-Pacific, UBS Wealth Management.

Durrie Hassan, Executive Director of Visible Mission Ventures and represents the new generation of private investors seeking to make an impact.

Leonie Kelly, Project Director for Sustainable Finance initiative (SFi). How have the green bond developments impacted Hong Kong’s local sustainable investing environment?

Mario: What the green bonds have done is raise awareness with investors. They read about it in the newspaper, and that addresses one of the key components that need to change, which is the awareness.

Leonie: Hong Kong’s green bond issuance is a positive signal to regional and international financial markets. There are more opportunities to explore around building a more sustainable Hong Kong, such as investment in certified green buildings, or more sustainable transportation and waste treatment facilities. Transparent guidelines and support in green due diligence and review will become necessary as the market (and the bonds) mature in Hong Kong. One sign of the market’s maturation will be a broader range of sustainable finance products, beyond green bonds, to include products such as ESG indices, impact funds, sustainability and social bonds. How would you describe the offering of sustainable finance products in Hong Kong at the moment?

Durrie: In my experience private banks are rapidly increasing the number of products they are offering, but there’s still a gap if you’re based in Hong Kong or Singapore versus the US or Europe. It can still be a bit of a challenge if you ask an investment advisor from a family office about impact investing. These investments can have a long time horizon, they require patient capital, and there may be a bit of disconnect between that and how your investment advisor is compensated based on the investments they sell.

Mario: The key question for product providers is, do we push or pull? What comes first, the demand or the offerings? Maybe we need to develop solutions that are attractive, then go out and build the markets and awareness for them, and use sustainable investing as a way to engage with investors.

Leonie: Wealth managers are gradually being pushed to adapt their offering as the population of millennials and their share of global income continues to grow. This generation also shows a willingness to tackle unsustainable growth, with sustainable, private capital solutions. The city has major potential to become Asia’s largest market for sustainable investing. What are some unique characteristics of Hong Kong’s sustainable finance investor community?

Mario: Many private investors here are entrepreneurs themselves, and that affects how they look at sustainability. The key ESG values are what management discuss all the time, it’s how they operate, how they weigh their risks. So if you speak that language to these investors they understand, because they run their own businesses. You have to approach it from a values perspective, not only about exclusion, saying we don’t invest in fossil fuel, tobacco, whatever. Companies that operate sustainably have lower risks and are likely to perform better, and this is something that entrepreneurs and the younger generation in particular, understand.

Also many high net worth individuals in Hong Kong have their investments and their ph