The next generation of investors and business leaders have taken over the reins from their parents. How they carry on will determine the sustainability of their future.
SINGAPORE (Aug 19): Bank analyst Benjamin Goh is realistic about how he and his family allocate funds for investments. “ESG [investments with environmental, social and governance factors] is not a priority,” he tells The Edge Singapore in a recent interview.
Goh, 24, is more interested in the returns that tech stocks can give, and he put 15% to 20%, or about $30,000, of his starter portfolio in Apple shares. His parents, as premier private banking clients of Oversea Chinese Banking Corp, have a more diversified approach.
Given burgeoning interest in the sector, however, Goh and his parents are beginning to look more closely at it. “Recently, it has been outperforming or looking like it will outperform other investments. It’s a trend [my parents] have to hop on to, otherwise they’ll stand to lose out to others.”
Indeed, this fear of missing out is driving a boom in so-called ESG and impact investing. There is a growing momentum of net flows into so-called sustainable funds — a term used to broadly describe funds in these areas. In 1H2019, sustainable funds worldwide attracted net flows of US$8.9 billion ($12.3 billion), beating US$5.5 billion for all of 2018.
There are various approaches, but they typically involve investments that are socially responsible or sustainable, and take into account the ethical or environmental impact of a business. ESG-focused funds would screen out companies involved in making arms or tobacco, for instance. Meanwhile, impact investments would allocate capital towards addressing social or environmental issues, such as poverty or carbon emissions. Most of both ESG and impact investment funds aim for market competitive returns for investors.
Julie Koo, head of Citi investment management sales for Asia-Pacific at Citi Private Bank, points out that the present-day environment has caused investors to shift their focus to areas of impact. “ESG initiatives have since gained traction among investors as they get better informed on the topic and align their investments with their values,” Koo says. “We are continuing to see the evolution of investments that are likely to deliver impactful outcomes.”
Market watchers have observed that a major driver of this global trend towards socially conscious investment is a younger generation of investors, including many who are coming of age and taking over the responsibility of the families’ businesses and wealth. This generation is “woke”, or socially aware, conscious that their actions have an impact on broader society, and that the sustainability of their business and investments are at stake.
In April, OCBC conducted a survey of 866 youths aged 16 to 29, about their attitudes, interests and desired experiences.
The survey results indicated that young people considered social causes important to them: 82% of respondents listed human rights as important; 81% said poverty; 79% listed the environment, elderly and mental health awareness.
“Today, next-generation investors are influencing their parents — pushing for ESG investments in sectors such as healthcare and technology,” says Money K, Citi Private Bank’s global head of next generation, global client service for Asia-Pacific.
At the same time, as the next generation takes over the running of their family businesses, they are also making changes to operations.
A client of Citi Private Bank tells The Edge Singapore in an interview that although her family’s manufacturing business has always been environmentally friendly, there is definitely room for improvement. Today, she helps raise awareness on the importance of reducing carbon emissions and sets standards in good ESG reporting for the family business. This client, who prefers not to be identified, is also convinced that returns on investments in companies with strong ESG policies are more robust than those without.
Now 41, she has been involved in a US$1 billion investment in a renewable energy company since her 30s. She has also encouraged many of her investment holdings to have key performance indicators tied to sustainability. “Companies with foresight on ESG topics are likely to find greater success and deliver superior shareholder returns in the long term,” she says.
For another Citi private client, although some ESG investments or socially responsible initiatives are not the most profitable, he pushes himself to think of these in a utilitarian manner instead.
“While I may lose out on a lucrative investment, it gives me great comfort knowing that I may have helped and brought happiness to someone in this world as a result of socially responsible investments that I’ve made,” he says.
To ensure that he puts his money in the right organisations or companies, he adopts certain considerations prior to his investments. For instance, he avoids investing in products or solutions that rely on outdated methods or processes, companies that have workforces of only privileged individuals or companies that place their reputations ahead of the social good.
To be sure, even as socially responsible businesses and investments provide the wealthy with an outlet “to give back”, many are also clear-eyed about the need for returns on their investments.
In the following pages, “next-generation” investors and business owners tell The Edge Singapore about their approach for today’s world.
