Navigating sustainable investing in current markets with Sun Tzu’s Art of War
Produced by Bloomberg Media Studios in partnership with Standard Chartered.
Sustainable investing can mean many things to many people, depending on one’s attitudes and even life stage. Standard Chartered’s 2022 sustainable banking report looks at how investor personas influence investment decisions. The report identified 5 investor personas – young professional, entrepreneur, family person, legacy builder, and retirement ready.
Environmental issues ranked high across all 5 personas, with climate change and carbon emissions ranking top. Other important issues ranged from addressing pollution and waste management to improving energy and resource efficiency, to food and water scarcity, as well as poverty alleviation.
Though all investors look to enhance returns via sustainable investments, legacy builders and young professionals are also driven by the potential of sustainable investments to hedge against ESG risks whereas the other three personas hope that their investments would be able to make a positive impact.
While investors have the intention to consider sustainable investments, accessibility, perceived low returns or higher risks and a lack of information remain barriers to entry. Some investors find that most sustainable investment opportunities are too broad and do not speak to their specific values. Others are keen on sustainable investments but find that the lack of standardised and well-documented information makes it difficult to compare opportunities.
At Standard Chartered, we actively address investor barriers by providing clients with clear and transparent information on sustainable investing and how we derive our suite of sustainable investment solutions. At the same time, the bank continues ongoing engagement and education with investors to debunk misconceptions and address concerns related to sustainable investment solutions. Today, Standard Chartered offers our clients access to sustainable investment products in 16 markets across Asia, Middle East and Africa.
Regardless of your investor persona, here are four tips from Sun Tzu’s Art of War to help you start investing sustainably.
- “In the midst of chaos, there is also opportunity” – Diversifying your portfolio to include sustainable solutions can improve the resilience of your investments. According to a BlackRock study, 94% of sustainable indices outperformed in Q1 2020’s Covid-19 market drop 2020[¹] and likewise during the market downturns during 2015 to 2018. This year, amidst challenging markets, ESG equity funds have also done better, on average, than their non-ESG counterparts. While they are in the negative, in line with the broad market selloff, ESG funds in comparison have seen smaller falls.
- “Opportunities multiply as they are seized.” – There is an increased focus on ESG issues and investors who understand and seize this opportunity can stay ahead of key trends. Take for example the theme of climate: There is a US$29 trillion opportunity to capture in the transition to a low carbon economy. With the ongoing Russia-Ukraine war, there is a renewed focus on renewable energy and clean energy, and governments and companies worldwide continue to sign up to net zero commitments. Case in point: fears over US energy security helped unlock a historic US$369bn bill for climate and clean energy programmes in July this year. This is the single largest investment made towards climate change in US history and will significantly further the development of the US clean energy industry. With an increase in climate regulation globally, this will also drive the momentum behind climate investing. Standard Chartered has a suite of third-party sustainable thematic funds on its platform, including those with a focus on capturing opportunities around climate change.
- “The greatest victory is that which requires no battle.” – Companies that manage their ESG risks well stand to be the winners of tomorrow. A 2019 study showed that ESG controversies wiped US$500b off the value of US companies[²], while a report from Refinitiv estimates US$4trn worth of carbon taxes to be paid by firms, which could hit as much as 13% of revenues for companies. ESG factors such as physical climate risks and supply chain disruptions can have a significant material impact on companies if not managed well. This is why Standard Chartered include trade notes in the products we recommend to our clients to raise their awareness and understanding of related issues so they can make better investment decisions.
- Finally, being clear on your sustainable investing goals is critical. “Know yourself and you will win all battles”. Some investors are keen on making a difference with their capital and aligning their values with their investments. Others see sustainable investing as an opportunity to build a more resilient portfolio, taking into consideration material environmental, social and governance factors for both risk management and the capturing of opportunities brought about by macro structural trends. Whatever the objective, it is important that you choose the approach and strategies that best align with the outcomes you target.
As interest in sustainable investing grows, Standard Chartered’s team of experts goes deeper to identify the latest trends and opportunities, helping investors identify compelling solutions to complement their investment goals and portfolios across international markets.
[¹] Blackrock [²] Financial Times