What numbers further tell about “S” in ESG investing amid the pandemic? / 傳染病大流行期間,有哪些數據詳細解說了ESG投資中的“ S”?

Green Finance Advisor of Friends of the Earth (HK) / 香港地球之友綠色金融顧問

March 2020 will go down in history as one of the most intense and sharpest sell offs people have ever experienced due to the Covid-19 outbreak worldwide. The MSCI World stock index fell by 14.5 per cent, meanwhile, according to Morningstar, 62 per cent of global environmental, social and governance-focused large-cap equity funds outperformed the benchmark. In hindsight, it would be interesting to backward-engineer the reasons behind the outperformance amid the public health crisis, which may shed more lights on how investors should perceive ESG investing, especially for “S”, which the traditional financial analysis used to understate its importance.

On top of the consideration of companies’ financial strength by ESG strategies given its quality bias, the enhanced risk management framework with the outright focus on ESG factors could have aided companies’ performance the difficult market environment. The pandemic has underlined the importance of disaster preparedness, continuity planning and employee treatment through benefits, as they would determine whether a business can continue its operations amid the lockdowns and social distancing, posing important implications for their performance. Meanwhile, many companies such as HKTV and other MNC also manufacture medical supplies, it highlights the role that private companies could play in addressing social problems, demonstrating that corporate reputation has been strongly positively correlated to financial performance.

Most importantly, the vision behind ESG investing rides on how the economy is being reshaped at the moment in order to accommodate the public health crisis. To combat the spread of the coronavirus, the global economy is severely impacted with the regional lockdowns and social distancing in place. The changing backdrop highlights the importance of sustainability and companies’ ability to adapt to changes in the societies to which they belong, as none of the companies can completely shrug off the impact from social or environmental changes. It is natural that ESG would outperform as sustainable investment takes into account the future and positive social impact, this manifests itself in the growth of the telecommuting company “Zoom” which many of us may be using now when considering the social benefits it delivers.

A wide range of social and environmental issues will reach their critical points in the coming decade, such as climate change, political stability and the future industrial revolution driven by technological advancement. Companies’ fortunes will hinge on whether they can weather these disruptive challenges in future. From investors’ perspective, as we can envisage that the increasing risks stemmed from environmental and social issues would be moving up corporate agendas to drive long-term development plans, we have to examine companies and identify winners among them.





How are ESG funds helping to build a sustainable world? / ESG基金如何幫助建立可持續發展的世界?

Green Finance Advisor of Friends of the Earth (HK) / 香港地球之友綠色金融顧問

According to various reports, ESG equity funds, despite falling, have outperformed the peers. Specifically, majority of the sustainable index funds, whether in developed markets or in the emerging markets, have been holding up better than the traditional index funds, of which the prices declined even more. This could be contributed to the fact that many of these ESG funds has little or no investment to energy, airlines and resources companies, which are among the worst performers in the stock market since this pandemic outbreak.

While minimizing exposure to companies with high carbon footprint is important, there are a lot that investors can do in sustainable investing. Avoiding risks and getting positive financial return is certainly important. But investors who care about ESG and sustainability would also want to bring positive social and environmental impact through companies they invest. We doubt this purpose can be effectively achieved through the current approach of most indexed funds or passive funds. These funds could be doing performing fairly well by avoiding fossil fuels and other so-called sins stocks by adopting negative / exclusionary screening. However, how much time and resources they spent in understanding the sustainability strategies of companies and engaging with them on improving their ESG metrics is the question.

Some investors were not necessarily interested in companies’ business model and process but just wanted to check their internal framework to demonstrate that they had completed their due diligence. This approach is hard to result in positive changes for companies, environment or society. On the other hand, a more value adding, constructive approach, i.e. active engagement, is preferred for investors and companies to advance. Active engagement can help companies better manage ESG issues and understand both the risks and the opportunities arising from sustainability development. Investors can learn the issues that companies and their businesses encounter and solidify their confidence in the companies in which they invest. The mutual learning process should be on-going and fruitful, resulting in long-term value creation for both parties. How much effort is put to engaging companies for positive changes and opportunities exploration in ESG? This is a question that investment managers have to ask themselves.

Passive funds, particularly ETFs, are popular for compelling reasons. Low cost and tax efficiency are certainly major benefits for investors. Thanks to the development of passive funds and ETFs, the barrier for ESG investing is lower and more people and capital that care about social responsibility and sustainability can participate. Corporates seeing this rising trend will also be more aware of ESG and will take the issue more seriously which is also a force for good. But another reason for investors choosing passive investment is the disappointment in the historical performance of the traditional active funds. The up and rising demand for ESG and sustainable investing is providing the opportunities for active managers to shine again ── only for those who do not deny climate change and take the sustainability subject seriously.

Source: https://www.morningstar.com/articles/976361/sustainable-funds-weather-the-first-quarter-better-than-conventional-funds


儘管最大程度地減少對高碳足跡公司的投資很重要,但投資者在可持續投資方面可以做得更多。避免風險並獲得積極的財務回報固然也很重要,但是,關心ESG和可持續性的投資者也希望通過他們投資的公司帶來積極的社會和環境影響。我們懷疑通過目前大多數指數基金或被動基金的方法能否有效實現這一目的。通過採用否定/排除篩選,避免投資化石燃料和其他所謂的罪惡行業,這些基金可能會做得不錯。但是,他們花了多少時間和資源來了解他們所投資的公司的可持續發展戰略以及與他們積極交流以改善他們的ESG指標 ?







過去二十年,大眾對環保及社會責任意識大大提升,各種不同的綠色投資產品如雨後春筍般湧現,不同的花巧產品名稱亦遍地開花,如社會責任投資、綠色基金、環保基金、創效基金等等,在下今天要說的,是ESG 基金與創效基金的分別。

ESG 基金顧名思義,就是以公司ESG 表現作為投資選擇,不管你是地產、零售、生產,只要你依據現時ESG 國際標準,做出高度披露,並願意進一步改善減排或善待員工等,便會得到很高的ESG 評分。現時ESG 基金是根據某數間評分機構對企業篩選進行投資。創效基金 (impact investment) 與ESG 基金的理念完全不同,創效基金是希望通過投資,對地球創造出正面效果,所以他們的投資對象,是公司的業務性質,必須能對地球產生正面影響,如風能、 太陽能、可降解塑料等。






Does the Pandemic reflect the importance of ESG? / 冠狀病毒大流行反映了ESG的重要性?

Michele Leung, Green Finance Advisor of Friends of the Earth (HK) / 香港地球之友綠色金融顧問 Michele Leung

The COVID-19 outbreak presents significant risks across sectors in global economy. One topic that has been widely discussed is the labour management and human capital, and how companies are managing through these times. For example, in aviation industry, lack of strong labour management program and low cash ratio could elevate business risk. The lapses in supply chain labour management may deepen concerns on business continuity for sectors like technology hardware. For retail food & staples, they are also facing public scrutiny as protecting their employees while ensuring continued access to essential good. Companies without regular employee channels and a poor track record regarding health & safety would likely to be impacted. On the other hand, companies that have been positioned to face the human capital challenge by offering systemic training programs, competitive benefits and widespread communication channels are likely to prove its resiliency.

ESG has never been more important than now in the midst of pandemic. It has been proven that ESG should be considered as one of the risk factors, and investors need to understand the ESG characteristics and the impact on their portfolios. Recent studies have also shown analytically that ESG as a positive distinctive driver of performance in this particular period.

While the duration of the crisis is uncertain, the economic consequences of pandemic will certainly last for few quarters. Investors may want to take the current opportunity to reset the portfolio, integrate ESG into their strategy, or at least, adding the ESG transparency to their portfolios.


在這場傳染病大流行發生之前,ESG從來沒有如此重要過。事實證明,ESG應該被視為眾多風險因素之一,投資者需要了解ESG的特性及其對投資組合的影響。 最近的研究和分析也顯示,ESG是這個特殊時期能夠推動業績的主要元素。

儘管我們不確定這場危機會持續多久,但瘟疫的經濟影響肯定會持續幾個季度。 投資者需要藉此機會重設投資組合,將ESG納入其策略,或至少在其投資組合中增加ESG的透明度。