A balancing act between embedding ESG agendas and maintaining profit
With global ESG assets predicted to soar to USD 53 trillion by 2025, Asia looks to be sparking the next leg of growth. From green bonds to carbon trading and asset management, the Hong Kong Government is angling to be a leading green finance and investment hub in Asia, and has just earmarked HKD 200 million for a three-year pilot scheme to build green and sustainable finance capacity. The Asian hub is also poised to benefit from its proximity to China, which is currently the fastest-growing market for green bonds. For context, with 70 ESG funds run by managers based in Hong Kong and a total AUM of USD 53.1 billion as at November, this equals five times the USD 11.3 billion across 26 funds run out of Singapore.
The CFA Institute, the global association of investment professionals, has seen growing interest among its members to acquire the Certificate in ESG Investing, and Hong Kong has gone from being the top APAC market for registrations last year to now being the top market in the world.
However, sustainability initiatives in 2023 could be tested by persistent inflation and economic uncertainty, and Hong Kong companies must balance between their spending on initiatives that enhance ESG performance in 2023 and maintaining profit in the short term. Furthermore, out of 125 businesses in Hong Kong, even with 45% committed to achieving net zero emissions, the challenge remains that still only one in three are aligned with the standards and accounting methodologies of the Science Based Targets initiative.
The economic slowdown is forcing organizations to rigorously attend this balancing act, and to accelerate their journeys to net zero, which means that both public and private sectors need to hire sustainability talent. The challenge is that the durability of sustainable employment practices and long-term energy transition goals are at risk, weighed alongside nearer-term considerations such as energy affordability and security. Increasingly, companies and investors must also navigate the risk of litigation related to sustainability, from inaction to disclosure, and the rise of “greenhushing”, the trend of refraining from disclosing sustainability practices for fear of penalties. 24 of the world’s largest and richest companies, including three based in Asia, were mired by ambiguous commitments.
This presents a particular problem in Hong Kong, where industry professionals are appreciating their lack of expertise in a sector that is expected to see significant growth, and there remains a substantial skills gap. With education institutes ramping up courses to deal with the acute need for ESG talent, there is an increasingly wider space for one of the hottest job markets, and the lack of hiring professionals with relevant ESG expertise has led to salary inflation, with ESG jobs in the city now commanding salary premiums of more than 30%.
Ultimately, to make a fundamental impact in climate mitigation, more investment is needed. From banks to investment funds, Hong Kong institutions focused on sustainability need to look towards bringing in the right ESG talent, particularly around compliance, the consulting side, and staff training to drive decarbonization. From assigning chief sustainability officers to looking at leaders with backgrounds in finance, HR and marketing, Hong Kong companies should be weaving ESG into job design and reskilling, and that could be from designing green buildings to a green supply chain, to closely monitoring tax policies and subsidy schemes that are encouraging the issuance of more green finance products.
ESG initiatives are being forensically monitored by the Asian investor community. There has been a shift from shareholder capitalism to stakeholder capitalism, which places pressure on businesses and leadership to deliver, particularly on the emerging social dimension of ESG, i.e., the importance of community, people, well-being and mental health in the workplace.
Firms, especially in Hong Kong, need to look into hiring talent with the relevant skills and knowledge in ESG reporting, climate change, carbon emissions and crucially today, developing digital solutions to improve the accuracy and efficiency of their ESG reporting and risk analysis.
Effective communication from the very top will be vital in these efforts, and firms need to improve how they communicate their commitment to ESG, in order to attract and retain the best talent. Leadership must show genuine commitment and action towards enhancing ESG, through policies, initiatives and campaigns, in order for old and new talent to feel properly supported, and all through clear messaging from senior management, with science based evidence and case studies to back up their ambitions.
With 87% of investment managers in Hong Kong saying that the focus on ESG issues will increase over the next twelve months, despite current macroeconomic concerns, the key answers institutions need to find are how best to embed ESG into their people strategy, how to promise and deliver positive impact at scale, and which focus areas and impact measures should be tackled to the greatest effect, in the short and long term.