Sustainable investing can generate good returns as a “tsunami of money” flows into such assets, said Piyush Gupta, group chief executive of Singapore’s largest bank DBS.
“The truth is that a tsunami of money is flowing into ESG investing,” he said, referring to investments that consider environmental, social and governance factors.
Even if the asset’s fundamental value doesn’t increase, the supply-demand equation will persist, Gupta Martin Soong said during the virtual CNBC Evolve Global Summit On Wednesday.
When asked if sustainable investing is just a trend or if it’s a long-term strategy, the CEO said that either way, the investment is likely to generate good returns.
Typically, if you were to create a basket of ESG stocks, you would definitely be picking up high performing companies, and that’s not a bad investment profile.
CEO of the DBS Group
“You can’t do badly to be in … a basket of ESG assets just because there is an extra trillion dollars in that asset class,” said Gupta, a member of CNBC’s ESG council. “If nothing else, prices will go up.”
Another factor that bodes well for sustainable investing is that ESG-focused companies “tend to be high performing companies,” he said.
“So if you were to create a basket of ESG stocks, you would typically definitely be adding high performing companies, and that’s not a bad investment profile,” he added.
Gupta said investors – both private and institutional – are starting to intentionally choose investments that are socially responsible or promote environmental sustainability.
“Many customers want a choice of what investments to make,” he said.
“It’s even more visible in the institutional investor space,” he said, noting that sovereign wealth funds often have guidelines for making sectoral decisions and where to put their money.
However, it remains to be seen whether investors will continue to opt for sustainability even if investments have not performed well.
“In many cases people are happy to choose ESG when they can get at least the same market return as a non-ESG investment – but it’s not clear how many of them are willing to compromise and seek a lower return on the product “said Gupta.” That still has to be tested.
China Asset Management CEO Li Yimei said before the same CNBC Evolve panel that there has been a great improvement in corporate governance and shareholder valuation in China over the past decade.
Li, who is also a member of the CNBC ESG Council, said state-owned companies are now regularly engaging their investors and top executives are talking to retail investors through social media and conferences.
“We think we have seen progress,” she said.
DBS’s Gupta agreed, but said there were gaps in Asia.
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Regarding the perception that public companies in Asia have historically not focused on the benefit of their shareholders, he asks whether corporate governance is all about investors or whether it extends to other stakeholders as well.
“Honestly, the rest of the world is going there now – a realization that … you need to make sure you have a responsibility to other communities, societies (and) taxpayers,” he said.
The idea that corporate governance is all about shareholders is changing, Gupta said.
“The rubric is changing, and within the … changing rubric, a lot of Asian companies are actually not doing that badly,” he said.