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RBC guides clients towards sustainable investing

BySCMP Events

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The concept of sustainable investing has really taken hold over the past few years and is now seen as a key part of any well-planned portfolio.

The objective, of course, is to direct a reasonable proportion of available funds into areas and initiatives which will mitigate climate change and improve the lives and livelihoods of people around the world in ways which reflect the best ESG (environmental, social and governance) principles.

Accordingly, leading wealth managers and their clients have been taking a much closer look at the actual and expected impact of different types of investment. They know priorities must shift as examples of the detrimental effects of climate crisis continue to multiply. But they are also aware that, by putting their money to work in the right way, they can be part of the solution and still make a decent return on their investments.

“In fact, we believe ESG integration strategies may lead to outperformance over the long term,” says Juan Aronna, Royal Bank of Canada’s (RBC) managing director and head of investment solutions and products for wealth management Asia and wealth management international. “It will create value not only for the environment and communities, but also for the investors supporting these initiatives.”

ESG integration includes ESG factors in financial analysis.
To emphasise the point, he notes the findings of a recent report by consultancy firm McKinsey which mentioned that around 63 per cent of roughly 2,000 academic studies found a positive relationship between ESG integration and financial performance, when measured by equity returns.

Even more significantly, latest estimates indicate that more than a third of worldwide assets under management (AUM) are now being managed in line with sustainable, or responsible, investing principles. Sources at Bloomberg Intelligence suggest the total value of such assets are on track to exceed US$50 trillion by 2025, up from US$22.8 trillion in 2016, and that is based on the conservative assumption of generally lower growth rates that in the past.

“This could well represent some 50 per cent of all AUM by the end of the decade,” Aronna says.

Such projections confirm the extent to which climate change and ESG considerations have become top of mind for many investors. That move is being given impetus by the increasing sophistication of metrics and stricter requirements for corporate reporting in areas like energy saving, carbon neutrality, water consumption and recycling waste.

“An improving regulatory ecosystem and increased transparency of ESG data disclosure are the key,” says Hong Kong-based Jasmine Duan, an investment strategist at RBC Wealth Management. “We have, though, already seen substantial progress globally and regionally to establish climate- and other ESG-related disclosure standards.”

In this respect, she particularly notes the pioneering work of non-profit organisations like the Sustainability Accounting Standards Board (SASB) and the International Sustainability Standards Board (ISSB), which have given a lead in setting worthwhile benchmarks and upgrading the range and specificity of relevant company reporting.

This is making it easier for savvy investors and their professional advisers to understand the workings of each underlying business plus its real-world impact and longer-term trajectory.

Investors are looking for opportunities beyond traditional types of renewable energy or ESG-themed funds.

Not surprisingly, it is also causing them to look beyond the more traditional type of renewable energy or ESG-themed funds and hunt out opportunities in previously overlooked parts of the market. That could be in newer, tech-driven sectors or, equally, industries producing basics such as fertiliser, packaging and construction materials in lower-carbon, less harmful ways.

“We notice that more and more investors, especially the millennials, are willing to ‘sacrifice’ part of their potential returns to ensure holdings in their portfolios reflect their personal values,” Duan says. “And, a 2022 RBC survey recently found that close to 60 per cent of our clients – and as many as 72 per cent of female respondents – were interested in increasing their share of ESG investments.”

Importantly, those lessons are not just for dealings with clients. They are also applied in-house, guiding management action at every level and shaping major policy decisions.

“At RBC, promoting ESG has always been one of our core strategic priorities,” Aronna says. “As an institution, we are committed to reducing greenhouse gas emissions from our global operations by 70 per cent by 2025, compared with 2018. We are also increasing the sourcing of electricity from renewable and non-emitting sources to 100 per cent by 2025, and we aim to achieve net zero in all our own activities well before 2050.”