IQ-EQ’s Jimmy Leong explores the rising significance of ESG investing with two leading voices in the sector
Following IQ-EQ’s appointment to administer the very first ESG-focused variable capital company (VCC) fund, GoImpact Singapore VCC, Jimmy Leong sat down with GoImpact’s founder Helene Li and investment consultant Sasja Beslik to discuss the surge in interest in ESG investing (particularly in light of COVID-19), the latest trends, opportunities and challenges in this space, and how GoImpact is driving forward the sustainable finance agenda in Asia.
Helene Li is a seasoned finance industry executive and passionate advocate for sustainable finance. After more than 10 years leading on strategic planning and marketing for the Asia-Pacific region at global financial institutions such as J.P. Morgan, Lombard Odier and BNP Paribas, Helene co-founded GoImpact in January 2019 as an action-driven ecosystem to drive forward the sustainable development agenda in Asia. Having worked in the private wealth space for most of her career, she is committed to leveraging the financial power and heart of the ultra-wealthy to make a positive social and environmental impact. She has spearheaded and curated industry recognised next-gen family business programmes and been a regular contributor to impact and entrepreneurship research throughout her career, and is now a top-ranked sustainable finance influencer.
Sasja Beslik, too, is a top-ranked influencer in this space. He is an international financial expert known for promoting sustainable finance across the world, having spent 10 years as head of responsible investments and sustainable finance for Nordea, the largest financial services group in Northern Europe. He joined sustainability-focused Swiss private bank J. Safra Sarasin in 2019, taking up the newly created role of Head of Sustainable Finance Development. He was named ‘Sustainability Leader of the Year by The New Economy magazine in 2017. In 2013, he received the Order of the Seraphim from the King of Sweden for outstanding contributions to Swedish environmental and sustainability theory.
Listen to the IQ-EQ podcast on
Hello Helene and Sasja, thank you so much for joining me today. I am delighted to welcome you both to The Alternative Series, our new podcast where we hear from the experts – such as yourselves – on the very hot topics within the global alternative fund sector. One topic that's on everyone's minds at the moment is ESG, which of course stands for environmental, social and governance. We know that sustainable funds, which invest based on these ESG factors, reportedly pulled in US$20.6 billion of new money in 2019. That's almost four times the 2018 amount, basically smashing through that previous record. So Helene and Sasja, you are both highly active in this space and have been driving the sustainable finance agenda for a number of years now. So what is driving this recent surge in investor interest do you think? Perhaps I can start with Helene.
Sure. Thank you, Jimmy. It's really an honour to be here with you and discussing a very pertinent topic together with Sasja. I think really COVID-19 has been, you know, surprisingly there's a silver lining to it that it really wakes people up to the agenda of sustainability – and, with that, sustainable finance. I was just looking through the S&P ESG index this morning and it was down – I mean, you would expect it to be down – but it was down by something like 5.8 versus the S&P 500, which is down by 7.3. So what that points to is that ESG investments have enabled investors to better weather the storm. It's actually a risk mitigator if you look at it that way. And there has been a record number of inflows on ESG funds even in the first quarter of 2020. That really points to that. Perhaps Sasja would have some more thoughts on this to share as well?
Yes, and thank you very much for having us both on this podcast. As Helene said, the inflow in ESG funds and investments over the last two years have been immense. And even during the COVID-19 crisis, we have seen a huge inflow, especially in the US, which is one of the biggest markets, and also the huge interest in emerging markets – especially in Asia, where the ESG as a risk mitigator but also as the opportunity identifier is contributing to find the investments, liquid investments and public investments, that are interested not only in the short term but also in the long term. And I think what you can clearly see from this big pandemic that has hit the world is that institutional investors and private investors going forward will be far more prone to identify companies to invest in that have systems in place to manage risk, but also companies that have leadership skills. And it happens to be so that ESG companies, or the ones that are rated highly from an ESG perspective, are also the companies that actually correspond to this in a much better way than others.
Thank you. So, Helene, you cofounded GoImpact at the start of last year to drive forward the sustainable development agenda in Asia. So could you tell us a little bit about GoImpact and what makes it unique?
Sure. Actually GoImpact, as the name suggested, is very action focused. Impact. Let's go. So it's really trying to bridge the gap really between the talk and the action. You know, what I've realised throughout my banking career, there's been a lot of discussion, very valuable discussion around sustainable finance, how capital markets can react to it. But when it comes to actionable deployment of capital, it's still lagging behind the talk a little bit. The talk is a bit louder than the action. So really with that in mind, we're trying to see if we can pull our network and resources and skillsets and everything together to try to enable people to invest in the future they like to live in. After all, sustainable finance is about investing in a future you'd like to see and you'd like to live in. So that's really what, in a nutshell, we're doing.
What makes GoImpact’s approach specific is the combination of the skills that we have acquired in separate parts of the world and in the same area over the period of I think 20+ years. I mean the standing of the enormous growth potential in Asia, especially related to transitioning to a sustainable future with the companies and sectors that need to scale up. Uh, and also the in-depth knowledge that GoImpact has on the ground, which is extremely crucial if you are going to be able to deliver both the good and profitable investment solutions going forward, but also if you're going to able to grow business in that area. So I think from that angle, this combination is rather unique. Most of the time you will see that international players will manage investments out of London or Switzerland or US and in this particular case we are on the ground and this is something that we strongly believe contributes to a much better understanding of what is really going on. As an investor you really want to understand what is going on on the ground and, during my years of investing, I've spent a lot of time traveling and being on the ground, which is something that I think is really contributing to making the best out of it.
Yeah. Actually, if I may, sort of the combination of market proven Nordic investment expertise, and with our Asian focus and knowledge of what the Asian capital owners probably want and need, it's what makes the platform unique and what makes the fund unique.
Thank you. Perhaps Sasja, just to follow up on that previous question – how does Asia currently compare to the rest of the world when it comes to sustainable finance and ESG, in your opinion?
You know, I've been following this for a number of years and as I said I've been on the ground in many places in Asia. I think I actually virtually visited all of the Asian countries. I mean, two, three years ago, what you could see clearly is the immense influx of capital and the innovation and willingness to scale up the solutions on a product and service side for many Asian companies, because it's necessary for them given the exposure they have and given this shift that we need to take into account. In the same time, I think one of the challenges in Asia has been, and to some extent still is, a transparency issue because that's on the governance side very much still a challenge, really understanding the dynamics behind that. But I think that has also improved over the last couple of years because the Asian companies, the big ones, the scalable ones, are the global companies and they operate on a global level, which means that they need to have systems and governance in place that actually works not only in Asia. So I'm very positive and I see a huge amount of opportunities in Asia. Uh, let's not forget the risk. I mean risk is there, but I think risk is going to be everywhere for the next 10, 15 years, given that we need to move from sort of a heavy economy into a renewable, growing, economic development. So, you know, many improvements, risk is there, but I think that in Asia there is a scale, there is a volume, and also I think politically something that’s important to mention is the willingness from Asian countries to really make the effort to transform to a sustainable future, which is really, really positive.
Thank you. So, we can't have a conversation at this time without touching upon a really hot topic: COVID-19. So how has the pandemic impacted the development of sustainable finance and has it in any way accelerated investor interest given that the whole worldwide feelings of social responsibility as we strive to stop the spread?
Yeah, actually, Jimmy, the short answer is yes, as, you know, the ESG index from S&P just demonstrated that I mentioned a little while ago. The slightly longer answer is also yes, but an elaborated yes in the sense that this is not a financial crisis like what we experienced in 2008. Okay, there's no liquidity crunch. You know, it's not the same. It's really a kind of public health event or health disaster that has sparked off a confidence crisis. So when people are faced with that, I think it really provides a strong tailwind for sustainable investments to restore the level of trust to mitigate the level of risk that people will see. So I think definitely, you know, the silver lining of COVID-19 is that if sustainable investments was not on your agenda before, it probably will be now. And if it was on the back burner in your portfolio before, it probably will move front and centre stage.
I think what you will see for the next three to four years is the shift from environmental, especially on environmental side, you have seen a lot of focus on the climate issues for the last couple of years. It's going to be shift towards social issues, but especially in light of millions of people around the world being affected in terms of employment. So social issues will become even more important within the E, S and G. I mean, the S and G part, how a company manages the employer relationships, uh, supply chain management but also how they manage governance issues will be the big topic for the next couple of years.
Okay. And Sasja, just perhaps more generally, what are the latest trends in sustainable finance? And what's next for the sector?
The latest trends. Look, each sector has its own trends. You can clearly see now, if you take a financial industry per se, you can actually see that there's been a huge development of the services and the products. So, in the Nordic regions and in other European countries you will see a lot of green bonds, green loans, green corporate loans. You will see a lot of balance sheet products for the banks that are being developed in this context. On the investment side, you will see a huge influx of assets and interest into especially, I would say, impact related products. So most of the products on the ESG side over the years have been process driven in terms of we have the right processes in place, we have the right approach to a certain sectors. Now it's going to be more outcome driven. So what I mean by that is what do you get as the buyer from your side when you invest in these type of products? Do you get improved energy efficiency? Do you get a better working conditions? Do you get things that you can actually calculate? And these are the things that we in in GoImpact have been sort of looking at in order to develop the best methodology we can find to get a net positive impact on the investments that we want to make going forward.
Okay. Um, Helene, just to follow up on that. So how can investors in your opinion capitalise on these trends? And where do the investment opportunities actually lie?
Right. As Sasja was just saying, if you look at measuring the net positive ESG impact, i.e. not so much by exclusion or by mitigation, but what are actually the concrete positive impact that has been driven, you’re probably looking at sectors like climate, you know, in the current context, and also health, you know, with the COVID situation, or investments into health, whether it be public health or just health tech and healthcare in general have really moved forward as well. So I would say that climate and health sectors are really offering quite a bit in terms of the investment universe and by climate we mean not just the typical energy transition to solar or cleaner energy, but it would also mean, you know, energy efficiency and also a host of other initiatives around climate, managing the climate risks.
Okay. My next question, actually, it's around key challenges facing sustainable investing. We know for example that the lack of standardisation in ESG measurements and reporting has been a big challenge to date. There's also this perception of having to choose between impact versus profit. Though the thinking is shifting on this, as we all know, do obstacles remain in terms of bringing sustainability further into the mainstream, in your opinion? Perhaps Helene, and Sasja can comment on that as well.
Well, okay, let me take a first crack at it first and I'm sure Sasja will have more words of wisdom to share. Now, I think it's really a bit of a misnomer as you say. I'm glad the perception is changing that people believe that if you do ESG investments you have to sacrifice or compromise financial return. Every investment is a trade-off. So in some cases you have to sacrifice some return but not as a rule of thumb. So if you are investing in traditional capital market products, I don't think anyone would expect an investment to be without any trade-offs. So it's really a matter of risk and return and how that plays to your own risk appetite and risk profile. Now in terms of the gaps and the challenges, there are quite a few actually. And I think, first of all, I would actually point to an investor education gap. The kind of learning gap. The more people understand about deploying capital towards sustainable ends, the better it is that we can enable the ecosystem to grow and accelerate much faster. So the second gap is, as you quite rightly pointed out, Jimmy, is the data gap. Reliable, clean data that people can use, that investors can feel comfortable to understand and to frame their investments. Uh, but I don't think that needs to be a showstopper. Seriously. If we draw on the Nordic experience, which Sasja can talk about in-depth, I don't think that the lack of data has really been stopping people from deploying capital. It's making it more difficult, for sure. You know, we’d like to see improvements on that. And I believe there are tools that everyone can collectively work on that. But you know, there are probably ways to look at it and to benchmark the return on your investments.
I think we’re in a situation in the industry and anywhere in the world, when you start realising that the data that you are looking at actually matters, then you realise that there is no conflict between, you know, looking at the way how companies are managing environmental, social and governance issues and how they're providing shareholders with their returns. It's actually one and the the same thing. It's adding another lens of understanding of opportunities that you don't usually in a mainstream look at. So I think the next couple of years, as Helene said, it's going to be the data, the availability will increase. And I think what is the big name of the game for the next three to four years is the verification of the data. You see, currently, if you look at the data available on the market today, only investors are swimming in the same pool. So everybody's trying to get something from the pool of data that is available. And most of the data we have access to today, it's not third party verified. What it means in practice is that the companies do report, self-report, the CO2 emissions and the data related to their management practices, or maybe some of the data on product and service side, but however that has not been verified. We don't know if it's correct or not. In some instances, I can give you a couple of examples in the Nordic countries, which are very well developed in this area, and the companies that are leading in the world, we had the look at the self-reported data from companies and then compare that with data reported through the MSCI, which is one of the big ESG providers in the world. The differences in some instances were up to 60% per company, so you have to bear in mind that this is very important because you make investment decisions based on this. So, but development is there. I mean we will have more and more of availability to granularity of data. But at the same time, I think the verification part, it's still a big challenge to tackle for the investors going forward because everybody would like to have the best availability of the data going forward on this.
Okay. Sasja, so perhaps on products, so what are the available products in the financial markets for sustainable investing? I guess both in terms of public markets and private markets, potentially?
I mean, you have basically the full range of financial investment products today, as I said earlier, both in a balance sheet, if you are just lending money to people, I mean the credit side, but also if you're investing. So you would have all kinds of both equity, fixed income. You will have private equity funds, you will have a listed equity, you will have a balanced portfolio. You have the availability, I mean the financial engineering, it's tapping into the ESG as one pool of either risk management or, you know, improved performance, depending on the strategy the performance managers have who are doing this. So, you know, five years ago you would have mostly the products on the equity side, especially on the global, maybe European, some emerging market products. But today you have a full scale of, you know, financial instruments that you can use in order to – indices and so on – that you can provide to your clients.
Yeah, so that's becoming quite mainstream, and I think that trend probably seems that it will continue. Um, Helene, we know that GoImpact is currently in the process of launching a new ESG-focused fund using Singapore's new VCC framework, which is the variable capital company framework – with IQ-EQ’s support, naturally! Could you tell us a little bit more about this fund and how it differs from other ESG focused funds?
Sure. We're actually very honoured to be in the first group of VCC funds and the only ESG fund in the first group, as the Monetary Authority of Singapore announced in January of this year. So I think it's, you know, it's the uniqueness of having this structure and having this ESG-focused fund is that it enables and it brings the Nordic kind of portfolio management expertise, with an Asian lens, to investing. And I think that really plays to a lot of the appetite of investors that we've been talking to. So we are all set to launch this quite shortly. And I really believe that this is not just a fund for the sake of having another fund. It's really trying to bring along a unique set of investment lenses. You know, try to leverage the market proven experience that Sasja has throughout his investment career. And to bring this to filling a gap that there isn't really something with an Asian focus currently in the market. And we hope that with this combination, we can, you know, take a crack at providing that and we are probably in a very good position to provide that.
That's fantastic. And Sasja, how does this differentiate in your opinion from the other funds?
I mean this strategy is long-only focused, emerging markets heavy, tilted strategy that is focusing on scale and the impact created on the emerging markets, uh, with Asia of course at the forefront, to see how we can find and invest over the time in the companies that are leaders or to become leaders where the impact of what they do is basically net positive. What I mean is that with the methodology that I've developed over the years where the companies that are evaluated on their net positive impact, not only on positive or negative side, we are trying to find the balance here. And of course being a long-only approach it will create a sort of a continuity in the way how you deal with companies that, you know, need time and also need time to develop. And you're looking for a scalable sort of solution that you believe can give you and provide you with good returns.
Should every investment portfolio incorporate ESG criteria and diversify into impact investing?
If you ask me, yes. I don't know if everybody shares that view, but if you ask me, this is like a putting the extra lenses for yourself to see better what type of what are you investing in. I used to take this analogy: usually you don't invest 500 million into a house in Spain or somewhere else in the world if you have seen it over internet only. I mean, you would like to see it, feel it, touch it, you know, have a view and so on. And this is what ESG brings you, a completely another level of understanding of the parts of the company or the organisation or products and services and the better understanding. Nobody is actually saying no to more information. But the problem is how do you evaluate that and how do you make the right valuation on the right type of information. That's the thing. One of the investments’ biggest challenges. Yeah.
Sure. Um, and last but not least, what is on the horizon for GoImpact and what is your vision for the coming decade?
Sure, sure. I think what is going to shape the next 10 years between 2020 and 2030 is really the decade of sustainability. You know, we know that in back in 2015 the UN have mapped out 17 sustainable development goals with a timeline to achieve those by 2030. We are now just 10 years away. Are we really on track in terms of controlling the temperature increase, as determined by the Paris Agreement and others? Not exactly. So I think it's really the decade where people focus on moving in this direction. And I think COVID-19 has really exposed so many cracks in our system that it really helps to push this agenda forefront. So very much so I think GoImpact is, of course, you know, wanting to build out the ecosystem and be an actor on this stage.
I think Helene has really touched upon the one of the core elements, but I think, I completely agree it's a decade of transformation. So everything which is related to COVID is one thing, but all of us understand that as the demographics look as they do, urbanisation looks as it does, uh, climate change is having a more significant, tangible, physical impact on our life, we need to move capital. So I think the next 10 years probably in our industry will be about really true transformation of assets into the sustainable investments and also looking for the scalable solutions. Nobody is any more interested in investing just for the sake of it. I think people understand the link and the linkages between these two things. Also another thing which I think is fair to mention in this context is that usually, on a personal level, people will do many sacrifices to tackle climate change as being one of the very important issues on a personal level of many people. But they don't usually understand the link between the global financial industry and the investments. And if they do that, they also can understand that if you invest in a product like this in Asia, or in other emerging markets, you're not only tackling your personal sort of things, you can actually contribute to this on a global level and on a scale that you are not able to do anywhere else, because the financial industry is the truly sort of a global player in this field. So I think many people will realise that and I think you will see an enormous shift of capital into this space going forward.
Thank you. That's great. So thank you very much, Helene and Sasja, for your time and for sharing your insights with us. It has been a pleasure to speak to both of you and very interesting indeed. Thank you also to everyone who's taken the time to tune in and listen. If you have any questions on anything we’ve discussed during the session, please do not hesitate to get in touch. Thank you.
Thank you. Thank you, Jimmy, and thank you everyone for tuning in.
Thank you very much.