<blockquote>
Agnes, thank you so much for joining this conversation. Before we start, we would love to learn more about you and your impressive career. What motivated you to become a sustainable investor?
</blockquote>

The movie &ldquo;An Inconvenient Truth&rdquo; convinced me that we needed to do something about climate change. It reinforced my chosen mission to help make the world a better place.&nbsp;

Soon after, I went to Shanghai and Hong Kong to manage investment risk for a large family office. In between, I started my own company to help our own family and professional investors make renewable and cleantech investments. Through training facilitation, speaking engagements and publications, I advocate for ESG and sustainable investing. This is the area of research in my current PhD studies, a welcome challenge after four decades working in global financial markets.&nbsp;

I joined Yaozhi Asset Management International this May. We are the global-facing arm of the Yaozhi Asset Management Company in Shanghai, a registered member of the China Asset Management Association. I presented the case for becoming a PRI signatory and ESG-investing &ndash; we strive to be the first indigenous China/Hong Kong asset manager to offer a differentiated Greater China ESG fund for institutional and professional investors.&nbsp;

<blockquote>
What do you think is driving China&rsquo;s emergence as a leader in ESG advocacy? Which driver - performance, demand, policy - is the strongest driver of ESG adoption in China?&nbsp;
</blockquote>

Taking a step back, China saw the launch of its first &ldquo;ESG fund&rdquo; in 2006 &nbsp;and has since seen over forty organizations &nbsp;launch ESG-themed funds, with the more recent products deemed as true ESG offerings. China is one of the PRI&rsquo;s fastest growing markets with nearly fifty signatories , and one of the top three issuers of green bonds in the last three years. &nbsp;China&rsquo;s cumulative issuance of USD200 billion represents a quarter of all issuance by the end of 2019 .&nbsp;

How? An influential central authority determined to meet climate goals and align Chinese climate finance standards with global standards has been the primary driver of rapid ESG adoption in China. The government has committed to the Paris Agreement and is actively transitioning the economy for &ldquo;peak carbon&rdquo; by 2030.&nbsp;

So far, policymakers have enacted over 100 green finance policies &nbsp;to promote both the advocacy and practice of ESG investing. The China Securities Regulatory Commission (China&rsquo;s SEC) requires ESG disclosure from all listed equity and bond issuers by 2020. &nbsp;The recent Greater Bay Area (Guangdong, Hong Kong, Macau) initiative further emphasizes the significance of green finance.&nbsp;

Beginning this summer, Hong Kong requires all exchange-listed companies to produce a statement setting out the board&rsquo;s consideration of ESG risks and climate change impact on their businesses. I&rsquo;m glad that the Hong Kong Exchange updated the IPO guidance in late July to ensure ESG mechanisms are built into the listing process .&nbsp;

In addition, investors and asset managers have become a stronger voice on ESG over the last twelve months. I&rsquo;m seeing the investment community gain more conviction that demand for ESG strategies is real, and that performance is not sacrificed as a tradeoff. While corporate governance &ldquo;G&rdquo; remains an overarching concern, company performance related to &ldquo;E&rdquo; and &ldquo;S&rdquo; risks are given increasing attention.&nbsp;

For one, I&rsquo;m curious to learn what share of assets under management in China&rsquo;s National Social Security Fund (NSSF) represent strategic allocations to ESG mandates, with its Japanese counterpart, the Government Pension Investment Fund (GPIF), leading the charge for Asian sovereign wealth funds four years ago .&nbsp; 
&nbsp;

<blockquote>
How can asset managers position their organizations to capture this trend? &nbsp;Which capabilities (e.g. talent, product, data) are most challenged?
</blockquote>

I hear a lot of complaints about data from the investment community, but let me refocus. I would argue that even more influential to creating ESG opportunities is having all the players in the ecosystems aligned and motivated to play their part, especially asset owners which make allocation decisions.

I have the privilege of being in family offices and asset managers that stretch across Hong Kong and China, as well as facilitating ESG training at the Hong Kong Institute of Directors (HKIoD). As a result, I meet many board members at different stages of implementing ESG practices into their operations and asset managers who are variably skilled in ESG integration into their investments. I see a good part of the entire value chain. After industry policy removes initial inertia, asset owners must be convinced and motivated to allocate based on ESG objectives in order to propel asset managers to train talents and develop products in this important space.&nbsp;

Beyond asset owner alignment, my view on data is that we do have a shortage of deep coverage on Greater China.&nbsp;

Most of the ESG data providers I have spoken with cover between 150 to 500 Hong Kong large cap stocks in their database. Most of them share a similar approach whereby analysts deploy proprietary methodology largely on reported data from companies. This is where MioTech has an advantage in enhancing depth and breadth of company coverage, thanks to its AI engine that scouts alternative data daily and systematically.&nbsp;

<blockquote>
How should institutional investors evaluate asset managers in terms of ESG capability?&nbsp;
</blockquote>

In short, the two flags I would watch for are &ldquo;bluewashing&rdquo; and &ldquo;greenwashing.&rdquo;

It&rsquo;s not enough to register as a PRI signatory yet not proactively bring the majority of AUM under its principles&ndash; that&rsquo;s bluewashing. Quality impact reporting is also critical, otherwise the asset manager risks a poor reputation of greenwashing its ESG offering as a marketing ploy.&nbsp;

A sample of questions I ask asset managers include: 
&bull;&nbsp;&nbsp; &nbsp;How do your analysts collect non-reported data and draw conclusions from the data collected? 
&bull;&nbsp;&nbsp; &nbsp;How is this incorporated into your portfolio construction? (80% respond with a &ldquo;black box&rdquo; approach.) 
&bull;&nbsp;&nbsp; &nbsp;Who can override ESG criteria in portfolio inclusion and position weighting? 
&bull;&nbsp;&nbsp; &nbsp;How is ESG impact measured and reported in this fund? (For instance, carbon emissions intensity)

At the end of the day, I want to gauge from this fund manager: do they match my passion for this field of investing? 
&nbsp;

<blockquote>
What surprises you the most about the evolution of financial markets in China?
</blockquote>

Chinese financial markets have mounted a steep learning curve since China opened to the world in 1979, but China has progressed extraordinarily fast and the growth of its asset management industry well exceeded the pace seen in other developing markets. This is the first surprise, though it may also come as no surprise in light of the government&rsquo;s centralized management approach.&nbsp;

Secondly, the Chinese asset management space is in fact a maturing market, with major international players jumping onshore to partner in joint ventures with local financial institutions to amass market share in this growing economy. Some of these global players are taking majority ownership.

This trend presents an excellent opportunity for new companies which deploy differentiated methods to structure ESG products and train members in climate finance in order to grow a new ecosystem of values-based investing. These talents could lie in policymaking, asset allocation, portfolio management, and data generation.&nbsp;

Looking ahead, Yaozhi&rsquo;s aspiration lies in playing a leading role in ESG fund management as we contribute to an orderly transition to a better economy by environmental, social, and governance standards.&nbsp; 
&nbsp;

Special thanks to <a href="https://www.linkedin.com/in/meetmelissazhang/">Melissa Zhang </a>for her contribution to this article.&nbsp;

References:

1.&nbsp;<a href="https://www.asiaasset.com/post/22971-china-southern-am-1218">https://www.asiaasset.com/post/22971-china-southern-am-1218</a> 
2. <a href="https://www.chinawaterrisk.org/opinions/top-10-responsible-investment-trends-in-china-in-2020/ ">https://www.chinawaterrisk.org/opinions/top-10-responsible-investment-trends-in-china-in-2020/&nbsp;</a>

3. <a href="http://https://www.climatebonds.net/resources/reports/china-green-bond-market-2019-research-report">https://www.unpri.org/searchresults?qkeyword=china&amp;PageSize=10&amp;parametrics=WVSECTIONCODE%7C1018&amp;cmd=ReplaceKeyword&amp;val=china</a> 
4.<a href="http://www.climatebonds.net/resources/reports/china-green-bond-market-2019-research-report"> https://www.climatebonds.net/resources/reports/china-green-bond-market-2019-research-report</a>

5.&nbsp;<a href="http://www.chinawaterrisk.org/opinions/top-10-responsible-investment-trends-in-china-in-2020/   ">&nbsp;https://www.chinawaterrisk.org/opinions/top-10-responsible-investment-trends-in-china-in-2020/ &nbsp;&nbsp;</a>

6.&nbsp;<a href="https://www.hkex.com.hk/News/Regulatory-Announcements/2020/200724news?sc_lang=en">https://www.hkex.com.hk/News/Regulatory-Announcements/2020/200724news?sc_lang=en</a>

7. <a href="https://www.gpif.go.jp/en/investment/pdf/summary_report_GPIFs_stewardship_activities_in_2016.pdf">https://www.gpif.go.jp/en/investment/pdf/summary_report_GPIFs_stewardship_activities_in_2016.pdf</a>

MioTech speaks with Agnes K Y Tai, Senior Partner at Yaozhi Asset Management International and ESG thought leader, to uncover the rapidly evolving ESG landscape in China. We discuss how Chinese asset managers are positioning their organizations for this opportunity, and what makes Chinese ESG adoption different from that in other financial markets. 

Yaozhi International: ESG Investing for Asset Managers in China

MioTech ESG Team

<h2 dir="ltr">We&rsquo;re currently seeing pressure for financial institutions to integrate ESG strategies into investment decisions, why the sudden push/trend?</h2>

&nbsp;

ESG, or Sustainable investing (&quot;SI&quot;), has developed into a financial megatrend in recent years. Originally followed primarily by professional, institutional investors, it sees now wide adoption from private investors, especially in Europe and the USA, with a significantly growing number of Asian investors adopting SI approaches.

&nbsp;

At UBS, we have made the decision early on, to help shape the sustainable investing landscape and be at the forefront of bringing exciting investment solutions to client which look beyond the pure return maximization but take into account how these returns are being generated.

&nbsp;

We&rsquo;re using our expertise, knowledge and connections to drive change that matters. Innovative finance can be good for society, good for the environment, and give good returns. In fact,we think they all go hand in hand. Across our private and institutional businesses, we manage USD 313bn in dedicated sustainable investing strategies.

&nbsp;

<h2 dir="ltr">What does this say about the new generation of investors? Are they driven by performance or principals?</h2>

&nbsp;

Our clients have various motivations to follow a sustainable investing approach. But some of the key triggers we see in liquid strategies are that they understand that integrating ESG as a factor for better informed investment decisions which can lead to superior investment outcomes over time as well as a trend to &quot;Investing for the next generation&quot; by building an investment portfolio which helps to leave the planet intact for their next generation.

&nbsp;

In private markets impact investing strategies, we clearly also see clients investing who are keen to build a long-term portfolio which allows them to generate positive impact on society through their investments, looking beyond just the targeted market-rate returns.

&nbsp;

Furthermore, many of the younger generation show a particular affinity for incorporating sustainability criteria in their consumption and investment behavior. They increasingly seek innovative means by which they can tackle problems of social inequality, as technology and extreme connectivity throw light on issues across the globe to more people. We see this reflected in strong demand for our longer term impact investing solutions which aim to create positive social and environmental impact as well as significantly increasing allocations to invest into leading innovators and companies contributing to a low carbon economy and a more sustainable future.

&nbsp;

<h2 dir="ltr">What do you think of the SI adoption rates in Asia?</h2>

&nbsp;

Awareness and adoption of sustainable investing has grown significantly among our clients in recent years.

&nbsp;

Based on our recent investor survey &quot;Investor Watch &ndash; Return on Values&quot;, for which we interviewed 5,500 investors across ten countries/regions, including Hong Kong &amp; China, we see strong buy-in for sustainable investing.

&nbsp;

In Hong Kong, 41% of investors expect sustainable investments to become the new standard in 10 years. In China, 74% of investors make that statement. At the same time, 50% of Hong Kong investors believe sustainable investments would deliver better returns than traditional investments.

&nbsp;

<h2 dir="ltr">We see policy taking the lead in supporting ESG initiatives, in your opinion, how important is it that financial institutions follow suit?</h2>

&nbsp;

We are on a journey to educating our clients and moving the industry towards a sustainable one. We are confident that with better understanding of sustainable investing and more available offerings, Sustainable Investing will become the mainstream approach for investors in the years to come.

&nbsp;

<h2 dir="ltr">What ESG strategies has UBS adopted?</h2>

&nbsp;

Options for SI investments have expanded rapidly in recent years.

&nbsp;

UBS has been at the forefront of bringing sustainable investment solutions to our clients here in the region. We currently offer our clients access to more than two dozen active and passive funds with sustainable investing focus, a universe which is growing constantly.

&nbsp;

Most notable are our mandate and fund solutions based on our unique 100% sustainable Strategic Asset Allocation which we introduced in April last year. It is the first time that private clients can access a 100% sustainable cross-asset portfolio, implementing ESG across all liquid equities and bonds strategies, allowing them to invest in a portfolio based on their personal risk and return expectations. The solutions contain innovative content such as ESG engagement strategies or World Bank bonds and Green Bonds with multiple risk profiles to choose from, yet aim to deliver full market-rate returns for investors.

&nbsp;

Another area in which we have seen strong client pick-up is Impact Investing. In 2017, UBS has committed to allocate USD 5bn into impact investments in support of addressing the UN Sustainable Development Goals.

&nbsp;

<h2 dir="ltr">&nbsp;What is UBS is excited about when it comes to SI?</h2>

&nbsp;

I am really excited about our very comprehensive services we can offer our clients on sustainability. Let me specifically pick two which I am really excited about:

With the launch of our innovative 100% sustainable investing portfolios last year, we were able to change the way many of our investors in the region think about their investments and truly work on raising awareness of how personal values and competitive financial returns are not mutually exclusive. In fact, we think they go hand in hand. We have raised over USD 600 million in APAC, and globally over USD 6 billion in this short period of time, showing the success of this offering in delivering performance and meeting clients&rsquo; values.

&nbsp;

Looking at longer term investments &ndash; impact investing &ndash; we are continuously bringing exciting opportunities to our clients. For example, we have raised USD 470m for our UBS Oncology Impact Fund, an early stage private equity fund focusing on investments in the development of cancer therapeutics in order to achieve attractive financial returns, while making a positive global impact helping to extend and improve the lives cancer patients, focusing on curing certain forms of cancer. USD 275m was committed by our investors here in APAC.

&nbsp;

<h2 dir="ltr">Will not having an ESG approach cost a financial institution going into the future?</h2>

&nbsp;

I absolutely believe that ESG will become a core component of the investment process. There is strong evidence today, that SI strategies deliver equal to better investment performance over time compared to traditional investment approaches.

&nbsp;

Let me refer to a recent large-scale institutional investor survey by Responsible Investor and UBS. 48% of respondents who are already &#39;doing ESG&#39; are doing so because they expect a positive impact on financial performance, and a further 48% of &#39;adopters&#39; are considering the integration of ESG into the investment process for the same reason.

&nbsp;

Additionally, and interesting to note, a majority of European institutional asset owner respondents predict that key environmental factors (climate crisis, biodiversity loss) will be more material to their investments in the next five years than financial factors.&nbsp;&nbsp;

&nbsp;

&nbsp;

 
Mario Knoepfel, Head Sustainable &amp; Impact Investing Advisory, Investment Platforms and Solutions, Asia Pacific, UBS Wealth Management. 
&nbsp;

Get a free deep dive into whether the world's asset owners are thinking long-term, sustainable finance.

​​​​​​​Download the "Investor Watch – Return on Values" Survey by Responsible Investor and UBS.

http://miotech-landingpage-images.oss-cn-shanghai.aliyuncs.com/files/1565578041344_Responsible-investor-ubs-esg-do-you-or-dont-you.pdf

In this article, MioTech speaks with Mario Knoepfel, Head Sustainable & Impact Investing Advisory, Investment Platforms and Solutions, Asia Pacific at UBS Wealth Management on the growing trend of sustainable investing in Asia and his belief that it can bring equal to better investment performance over time.

UBS: Sustainable Investing to Become Core Investing Component

<h2 dir="ltr"> 
Please introduce Vigeo Eiris and how the company is promoting responsible and sustainable investment in the finance industry.</h2>

 
<a href="http://www.vigeo-eiris.com/">Vigeo Eiris</a> is an international provider of environmental, social and governance (ESG) research and services for asset managers, investors and for listed and unlisted issuers. We undertake risk assessments and evaluate the level of integration of sustainability factors within organisations&rsquo; strategies and operations. 
 
Vigeo Eiris offers a wide and exclusive suite of research and ratings products and services on sustainability risks and performance. Our products support investors&rsquo; decision-making through a sustainable and ethical investment approach (including ratings, databases, sector analyses, portfolio analyses, structured products, indices and more). Vigeo Eiris obtained ISO 9001: 2015 certification for its processes relating to methodology, rating, sale and delivery of its data to all types of investors. 
 
With a team of more than 240 experts of 28 different nationalities, Vigeo Eiris is present in Paris, London, Brussels, Casablanca, Hong Kong, Milan, Montreal, New York, Rabat, Santiago and Stockholm. The Vigeo Eiris Global Network, comprising 4 exclusive research partners, is present in Brazil, Germany, Israel and Japan.

&nbsp;

<h2 dir="ltr">We&rsquo;re currently seeing pressure for firms to integrate ESG strategies into investment decisions, why the sudden push/trend? 
&nbsp;</h2>

Firms are facing growing expectations from their stakeholders to account for their willingness and capacity to act responsibly, to reduce their negative externality and to contribute positively to sustainability. COP 21 was a wake-up call for the world in 2015. The finance industry reacted swiftly and started to initiate a transition into a more sustainable and green economy, particularly in the face of the current climate emergency. At this stage, most of the world&#39;s leading corporations declare having embraced the 17 Sustainable Development Goals, to which virtually all UN countries have committed.&nbsp;

The recent acceleration to enshrine ESG considerations into investment decisions stems from investors&rsquo; fiduciary duty (e.g. UNEPFI). In addition, there are growing initiatives to demonstrate ESG considerations at international and national levels (PRI, Global Compact, SDGs, Montreal Carbon Pledge, French Law for Energy Transition&hellip;) and more and more concern about the threats of short-termism on company performance, investment returns and market behaviour.

Moreover, it is now recognized that ESG risks can have a meaningful financial impact: it is recognised that strong ESG performance can reduce capital costs as well as enhancing an assets&rsquo; value and improving reputation, human capital, operational efficiency and legal security.

Going forward, ESG analysis will have an ever-greater impact on investment decisions, while being a key driver of the transition to a sustainable economy. 
&nbsp;

<h2 dir="ltr">What do you think of the implementation rates in Asia from your perspective? 
&nbsp;</h2>

Asian investors have started more recently to integrate ESG factors into investment decisions, but most countries are now moving fast in this direction via regulation requirements and at the request of large asset owners to select ESG-driven asset managers. Focus in Asia and especially China and HK are more on environmental issues than Social or Governance. 
&nbsp;

<h2 dir="ltr">We see policy taking the lead in supporting ESG initiatives, in your opinion, how important is it that asset management firms follow suit?</h2>

 
All stakeholders have a role to play to be able to achieve ambitious climate targets.

Regulators have a role to play in encouraging companies to integrate ESG metrics more systematically into annual accounting and reporting documents, with the same principles of standardisation, oversight, and auditing which apply to purely financial metrics.

Investors have a role to play by requiring companies to demonstrate clear and transparent sustainable strategies and reporting to be able to assess a company&rsquo;s level of ESG engagement. 
&nbsp;

<h2 dir="ltr">How does Vigeo Eiris help financial institutions achieve their ESG goals?</h2>

 
Vigeo Eiris have a wide range of products to help investors, from assessing their ESG strategy to providing data for ESG integration. We also provide tools so investors can define and implement their own customised strategies and report on the impact of their portfolios. Integration of ESG into passive management is increasingly common, with a growing number of thematic or sectorial indices that are based on ESG data from providers such as Vigeo Eiris. We provide a very creative range of indices that gather the most promising issuers on hundreds of ESG topics and indicators. 
&nbsp;

<h2 dir="ltr">Vigeo Eiris also has Controversy database, could you please tell me more?</h2>

 
Vigeo Eiris&rsquo;s controversy database provides a documented and norms-based opinion in real time on companies facing allegations in order to allow financial institutions and investors to manage their risk exposure and take appropriate investment decisions.

The controversy database is continuously screening and qualifying controversies through three factors: severity, frequency and reactiveness of the company.

Our opinion assesses a company&rsquo;s capacity to manage controversies. It could be lowered when the company faces controversies relating to fundamental issues, such as a considerably adverse impact on the interests of a given company and its stakeholders, without the company permanently being the focus of reactive, reparative or remediative measures. The more the company is exposed to a significant number of controversies, the more our opinion will be altered. 
&nbsp;

<h2 dir="ltr">What are the current challenges facing financial institutions from adopting substantial ESG practices as opposed to something to check off the list.</h2>

 
The greatest challenge is their capacity to gather skills and improve their methods so they&rsquo;re aligned with mainstream ESG understanding and can incorporate adequate measurements in their models. 
&nbsp;

<h2 dir="ltr">Your thoughts on ESG Data, its value and its reliability?</h2>

 
Vigeo Eiris has developed a strong methodology with 17 years of history which is thorough, reliable and impartial. 
 
Our methodology is consistent, and is supervised by an independent scientific committee that supports back-testing and trend management. The ratings are consistent and comparable, and we try to have a high level of interaction with rated companies to access the most relevant information. 
&nbsp;

<h2 dir="ltr">What are the main ESG trends that Vigeo Eiris is seeing?</h2>

 
One of the main trends we&rsquo;re seeing is a need to systematically explore sustainability stakes, assess their related risks and opportunities, and explain the weight devoted to ESG factors in investment decisions. 
&nbsp;

<h2 dir="ltr">What is Vigeo Eiris currently excited about?</h2>

 
Vigeo Eiris is continuously developing new products to collaborate with investors and help them integrate ESG factors in line with their fiduciary duty.

Our products range from a historical negative screening tool to positive impact solutions and services. 
 
A recent development is Sustainable Goods &amp; Services (SGS). SGS research assesses the extent of corporate involvement in products and services that contribute to the achievement of the UN&rsquo;s Sustainable Development Goals (SDGs). It addresses the lack of data on SDG performance and makes it easy for investors to understand. We provide a positive screening to identify business activities devoted to sustainable solutions, complementary to the traditional ESG approach. 
&nbsp;

<h2 dir="ltr">Will not being sustainable cost a firm going into the future?</h2>

 
Not being sustainable is a direct threat for a given corporation, notably in terms of its brand, attractiveness, capacity to innovate, economic performance, and even existence.

&nbsp;

 
 
Juliette Macresy took charge of Vigeo Eiris Hong Kong office in September 2017, becoming Head of Greater China and South East Asian markets. She is already working with banks, investors, corporates and international organisations in the region on Green &amp; Sustainable bonds and its derivatives products while marketing Vigeo Eiris ESG research.

In this article, we speak to Juliette Macresy, Head of Vigeo Eiris’ Greater China and South East Asian markets, on the growing trend of sustainable investing in Asia and why "not being sustainable is a direct threat for a given corporation".

ESG Leaders

Yaozhi International: ESG Investing for Asset Managers in China

UBS: Sustainable Investing to Become Core Investing Component

Why ESG Matters When it Comes to Investing

ESG Leaders

Yaozhi International: ESG Investing for Asset Managers in China

UBS: Sustainable Investing to Become Core Investing Component

Why ESG Matters When it Comes to Investing

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