‘Green’ investments are not just about saving the planet – they’re about making more money, bank studies show
People who put their money into so-called green investments are not always doing it out of a sense of benevolence or concern for the environment.
According to separate studies by two leading international banks, they are increasingly making their decision for a slightly more selfish reason: financial gain.
“Globally, investors do not associate sustainable investing with a trade off of financial returns. Fifty per cent of the investors surveyed expect sustainable investing to outperform financial investment,” said Amy Lo, chairman and head of Greater China at UBS Wealth Management.
“And of those who are already investing in sustainable investment, 93 per cent believe sustainable investing will outperform traditional investment.”
The UBS survey found that globally 82 per cent of investors believe sustainable investments will perform better or at least on par with traditional investments. In Hong Kong, half of those surveyed expected sustainable investments to outperform traditional alternatives.
The Swiss investment bank surveyed about 5,300 people with at least US$1 million in investible assets excluding property across 10 markets: Brazil, China, Germany, Hong Kong, Italy, Singapore, Switzerland, the UAE, the UK, and the US. The survey was conducted between June and August 2018.
“Green bonds – bonds that are specifically targeting projects which are [aimed at promoting] a greener world – have over the past four to five years outperformed the wider index,” said Adrian Zuercher, regional head of asset allocation at UBS global wealth management CIO.
“In other words, investors are willing to pay a premium for these companies because there is better risk management, and that can translate into better performance.”
The data appears to back their thinking.
The MSCI Emerging Markets ESG Leaders Index, which tracks the performance of listed companies with high scores for their focus on environmental, social and governance (ESG) in 24 emerging markets, reported a 13.43 per cent annualised return in the three years to the end of August, higher than the 11.83 per cent generated by the MSCI Emerging Markets Index during the same period.
The Bloomberg Barclays MSCI Green Bond index outperformed the Barclays Global Aggregate from December 2013 to October 2017, in terms of equivalent bond returns.
An HSBC survey of 1,731 companies and institutional investors worldwide, carried out in May and June, found financial returns and tax incentives were the main drivers of green investment.
In Hong Kong, a third of respondents said their main focus was on financial returns when investing in green bonds or similar assets, while about the same number cited tax incentives.
“Investors are now making their decisions on whether to invest in a green bond based on commercial returns. This is a good indicator that investors are not purely making such investments for charity but they are really believing such investment can make money,” said Daniel Klier, HSBC’s group head of strategy and global head of sustainable finance, in an interview.
He said green bonds have become more attractive because they usually offer an interest rate 1 per cent higher than traditional bonds.