The unprecedented events of the past year underscores the daunting challenges posed by climate change. As the pandemic upended the global economy, governments around the world put sustainability issues to the top of their agenda, particularly in Southeast Asia.
While businesses are accelerating efforts to adapt to the new normal, consumers are increasingly turning to services and products that leave a smaller carbon footprint. They’re also actively seeking to support companies that demonstrate superior ESG (Environmental, Social, and Corporate Governance) standards.
The role of green financing
The urgency to reduce carbon emissions has spilled into financial markets. Financial institutions are accelerating the push towards a low-carbon world by employing the right financing and investment tools to influence the ways companies operate.
Indeed, investor demand for ESG-linked financing solutions has grown rapidly in recent years. Green, social and sustainability bond issuance climbed 5.2% to a record high of US$12.1bn in 2020 across Southeast Asia, compared to the previous year.
According to HSBC, 82% of individual investors consider sustainability, environmental or ethical issues to be important when managing their investments. Another 46% of individual investors believe their portfolios will comprise 100% sustainable investments in the next three to five years.
To address the growing demand for ESG-linked investment products, HSBC is mobilising its global resources to spur and lead the transition to a global net zero economy. In addition to transforming the bank’s own operations and supply chains, HSBC also aims to support its customers with green financing to reduce their emissions to net zero by 2050 or earlier.
Achieving ESG outcomes
The transition to a low-carbon environment often begins with conversations about awareness and improvisation.
“We have built a deep understanding of both our individual and corporate clients, many of whom have the ability to influence and inspire positive change as we embark on this collective journey,” says Philip Kunz, Head of Global Private Banking for Southeast Asia at HSBC.
This is where HSBC’s global network comes to the fore, connecting clients who are seeking ESG outcomes to like-minded individuals with the experience and know-how to help them succeed.
HSBC Private Banking is pooling investment expertise across the entire group to collectively accelerate ESG offerings. Its core portfolio approach imbues high-conviction themes aligned with the United Nations Sustainable Development Goals and the Paris Agreement.
“We strongly believe that sustainable investing does not detract, but instead is accretive to performance. It is a strategic priority for us to expand our range of products in order to find solutions that meet our clients’ evolving needs,” says Lavanya Chari, who oversees the private bank’s investment product strategy to deliver on the ESG agenda.
In April 2020, HSBC introduced its first private equity fund that seeks to achieve positive social and environmental impact, while providing competitive returns.
Its latest joint venture, HSBC Pollination Climate Asset Management, intends to establish a series of natural capital funds which invests in activities that preserve, protect and enhance the environment over the long term and address climate change.
“In addition, we will continue to be rigorous in our fund selection, hone our research and insight capabilities to better spot interesting opportunities in this space,” she adds.
Bringing more of HSBC to clients
As part of its net zero strategy, HSBC is utilising its international reach to proactively facilitate collaboration on two fronts.
One is to promote sustainability among public and private players. This involves working with investors, governments, nongovernmental organisations, other financial institutions and its suppliers to support long term investments in environmentally sustainable projects.
The other, and much closer to the heart of the organisation, is through its client relationships.
“With our global network and 150 years of heritage, I believe there is no other bank that is as well-positioned as HSBC to help customers embrace sustainability at every stage of their wealth creation journey. We also understand the impact of ESG issues on the community and the role that they can play,” says Kunz.
For instance, HSBC Private Banking works closely with HSBC’s Commercial Banking division to better identify specific areas that business owners can improve on.
“Rather than telling them to exit their business, we help these clients to continue pursuing their business, but in a far more sustainable way. And ultimately, helping them understand that while the path to sustainability may increase costs at the start, these (costs) will turn into an investment that brings huge benefits in time to come,” affirms Mr Kunz.
Another major factor that is driving interest in sustainable finance is unsurprisingly, the rise of younger entrepreneurs and investors. Studies have shown that the next generation, commonly referred to individuals between age 25 and 40, often have more progressive value systems than previous generations, and are hence drawn to investments that have direct social or environmental impacts.
Apart from providing thought leadership and innovations with sustainable financing, HSBC also takes a hands-on approach to engage the next generation. For more than three years, HSBC Private Banking has been running its Sustainability Leadership Programme, a platform built for the next generation to explore climate change and sustainability. The programme encourages them to apply sustainable practices to their own business and investment decisions.
While much progress has been made on the sustainable financing front, it may take a longer time for portfolios to truly reflect ESG objectives. That further reinforces HSBC’s commitment to its climate ambition, and Kunz echoes this sentiment.
“We aim to get every client on board this journey. It’s really about what HSBC represents and why we exist – and that is to work in partnership with our clients to realise the opportunity to build a more sustainable, resilient, and prosperous future. So, why stop here?”
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