The Growth of Impact Investing

Michele Leung, Green Finance Advisor of Friends of the Earth (HK)

Impact investing is defined with the objective to generate measurable social or environmental benefits, alongside with financial returns. The investors typically with a mindset that want their investment to make a difference in the world. According to an industry study*, 95% of millennial investors or 85% of individual investors are interested in sustainable/impact investing.

There is increasing interest to apply the principles of impact investing to private and public equities. Particularly for public equities, the impact can be quantified by defining actionable impact themes (basic needs, natural capital) and sets of solutions (i.e., major diseases treatment, sustainable water), then calculating company revenue exposure to products and services with positive social or environmental impact.

The 17 UN Sustainable Development Goals (UNSDGs) were agreed by 193 countries in 2015 with a target date for delivery of 2030. The SDGs aim to foster collaboration within and between international private and public stakeholders to address critical global challenges such as poverty, inequality, and climate change.

Companies’ contribution to SDGs can be analyzed based on their operations, the product, and services they provide, rather than solely relying on companies self-declared alignment with the goals. With this type of analysis, investors can identify companies that are better aligned with the SDGs, measure, and report on the degree of SDG alignment while also to comply with client mandates around SDG alignment. Most importantly, they can potentially meet the rising demand to channel capital towards addressing the objectives by the SDGs. 

*Source: Morgan Stanley Institute for Sustainable Investing. Sustainable Signals: Individual Investor Interest Driven by Impact, Conviction and Choice (September 2019)

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[1]     ACGA Virtual Conference 2020 – Asian Business Dialogue on Corporate Governance

[2]    Outlook 2021 – The Unrealized Potential of Impact Investing in the APAC Region

[3]     2020 GRESB Real Estate Results – Asia

[4]     Engaging as a Sovereign Bondholder

[5]     Corporate Sustainability Summit

[6]     Panel discussion: The why, the what and the how (This event is part of Climate Risk Week Asia)

[7]     Climate Risk Asia Week – Measuring, Managing and Mitigating the Threat From Climate Change

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What will US climate policies look like when President-elect Joe Biden takes office?

Green Finance Advisor of Friends of the Earth (HK)

U.S. climate change policy is set for a different approach, following the results of the Presidential election. This article aims to take a look at the President-elect Joe Biden’s plan on the climate change policy and some of his climate action goals.

Electric Cars/ Automobile Emission

Biden mentioned he aims to get the US back on track to reach net-zero carbon emissions by 2050, in line with the Paris-Agreement. He also plans to implement a federal procurement program for clean vehicles and set a goal for all new American-built buses to be zero-emissions by 2030. To achieve this, he plans to endow US$2 trillion into research and development goals, including creating millions of construction , skilled trade and engineering jobs to build the new infrastructure while providing pathways for workers of all ages and people from background.

He aims to work to increase demands for American-sourced clean vehicles, especially in fleets, while encouraging consumers and manufacturers to move to electric vehicles through programs, one of which is the Clean Cars for America proposal to replace old automobiles.  

With a view to improve the electric vehicle growth, he also aims to accelerate battery research and plans to procure US$ 400 billion for batteries, electric vehicles and upgrading of industrial manufacturing processes over the next four years.  This includes creating a new Advanced Research Projects Agency on Climate that examines on a variety of low-carbon options and technologies.  He eagers to beef up the supply chains for clean industries, invest in national labs and etc.

Climate Diplomacy

Biden would return the US to a leadership role on climate change, re-entering the US in future climate negotiations to advance the goals of the 2015 Climate Agreement, the global pact made five years ago among nearly 200 nations to avoid the worst impacts of climate change.   Biden said he will bring the U.S. back into the Agreement as early as February 2021.    

The Agreement is a non-binding agreement amongst nations to reduce emissions and keep the increase in global temperatures well below 2 degree Celsius, or a 3.6 degrees Fahrenheit, compared with preindustrial levels.

Once the U.S returns, the agreement requires countries to set voluntary targets to reduce domestic emissions and create stricter goals in coming years.  The Paris Agreement has also implemented a binding requirement that countries are required to accurately report their progress.

It is apparent that Biden’s environmental plan and goals will be a huge undertaking, but it will set the U.S. on the right path to being environmental.

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面對新的營商環境,企業在追求業務增長之餘,更會探討如何將不同的社會持份者納入為營商策略的一部分,創造商業機構與社會共贏的「商社共生」(Creating Shared Value)方針。



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What is greenwashing?

Green Finance Advisor of Friends of the Earth (HK)

Cambridge Dictionary says greenwashing is designed “to make people believe that your company is doing more to protect the environment than it really is.”

There is a growing concerns on Fund Managers, or Corporations (listed companies or corporate bond issuers, or loan lenders) who did less than what they claimed on addressing environmental (or sustainability) issues as a marketing strategy.

In Hong Kong, regulators see the needs to meet investors’ growing demands for climate risk information and combat greenwashing. SFC has just launched a consultation on proposed requirements on 29 Oct 2020 for fund managers to take climate-related risks into consideration in their investment and risk management processes and make appropriate disclosures. Under the proposals, the Fund Manager Code of Conduct (FMCC) would be amended and the SFC will set out expected baseline requirements and standards to facilitate fund managers’ compliance.

Key Points that you should know:

  • It applies to fund managers which manage collective investment schemes (CISs) but at the initial stage they would not be mandatory for fund managers which manage discretionary accounts (in the form of an investment mandate or a pre-defined model portfolio)
  • It covers four key elements: A) governance, B) investment management, C) risk management and D) disclosure.
  • A, B, and C apply to fund managers which have discretion over investment management and risk management processes irrespective of whether they are overall responsible or manage only part of a fund; D applies to fund managers which are responsible for the overall operation of funds
  • Different disclosure levels (Baseline vs Enhanced) – Fund Managers with AUM HKD 4 Billion (USD 516M) or above are “Large Fund Managers”
  • Large Fund Managers are expected to adopt a more robust approach and make more detailed disclosures e.g. Large Fund Managers would be required to make additional quantitative disclosures of weighted average carbon intensity (WACI) of Scope 1 & Scope 2 GHG emissions at a fund level. Small Fund Managers would still be expected to disclose on Entity levels if climate risk is deemed to be relevant
  • Other example requirements: applies to ETF, following TCFD framework, Scenario Analysis
  • Consultation close on 15 Jan 2021, proposed transition periods: 9-12 months

FoE (HK) encourage market participants to respond to SFC to voice out your opinion!

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