Derivatives Broker Turned Green Warrior Takes on Dirty Asia Inc.by
WWF wants Asia funds to think more about environmental risks
Region's sustainable investment is tiny versus Europe, U.S.
After 17 years selling stocks and derivatives, Jean-Marc Champagne has a new pitch for investors in Asia: You can build a safer portfolio and help save the planet, too.
The 42-year-old former senior vice president at Jefferies Group LLC in Hong Kong is now one of the newest employees at World Wide Fund for Nature, the conservationist foundation known for its panda-bear logo. His job is to convince money managers across the region that investing in environmentally friendly companies is good for their bottom line.
That message is hardly unique, with this month’s global climate talks in Paris heightening the world’s focus on environmental risks. But Champagne is among just a handful of advocates targeting the money-management industry in Asia, where funds dedicated to sustainable investment represent a tiny fraction of those in Europe and the U.S. In a region with the world’s biggest carbon emissions and weakest corporate disclosure of climate risks, his challenge is to transform return-obsessed investors into agents of change.
“The biggest way to influence them is taking a look at the risks in the market,” Champagne said. “You can no longer turn a blind eye.”
Even for investors with little interest in climate change, environmental risks in Asia are getting hard to ignore. Beijing issued its first-ever red alert for air pollution this month -- closing schools and some factories -- and toxic air in the Indian capital of New Delhi reached 27 times the safe limit last month. Rising sea levels threaten to flood parts of Bangladesh, while forest fires in Indonesia have made the country the world’s biggest greenhouse gas producer in recent months.
The good news for advocates like Champagne, who left Jefferies seven months ago after the firm downsized its derivatives business, is that some governments and institutional investors in the region are starting to put a spotlight on environmental issues.
China, the world’s biggest emitter of carbon from fossil fuels, committed to reducing emissions in Paris talks and has targeted environmental protection as one of the pillars of its next five-year plan for the economy. In Japan, the 135 trillion yen ($1.1 trillion) Government Pension Investment joined a United Nations-backed network for responsible investment in September.
Sustainable investment has “been driven primarily at this point by Europe, but it’s likely to come to this part of the world sooner rather than later," said Mark Austen, the Hong Kong-based chief executive officer of the Asia Securities Industry & Financial Markets Association, which represents more than 90 banks, asset managers and law firms. “One of the leaders that we see in this is China.”
While tracking environmentally friendly investments is difficult given uneven disclosures and subjective definitions, a study by the Global Sustainable Investment Alliance suggests there’s room for growth in Asia. Socially responsible investments as defined by the GSIA made up just 0.8 percent of total managed assets in Asia last year, compared with 59 percent in Europe and 18 percent in the U.S. While SRI assets in Asia have grown by 32 percent since 2012, that’s the slowest pace among regions tracked by the alliance.
Asia lags behind on other fronts, too. Just 4.3 percent of companies in the MSCI Asia Pacific Index talked about climate risks in their latest annual reports, compared with 14 percent in the Stoxx Europe 600 Index and 33 percent for the Standard and Poor’s 500 Index, according to data compiled by Bloomberg. Asia makes up 13 percent of the 1,439 signatories to Principles for Responsible Investment, the UN-supported initiative to put SRI into practice. Excluding Australia, the figure falls to 4.9 percent.
Many money managers in Asia aren’t convinced that environmentally responsible companies generate higher returns in the long run, said Anand Prakash, a managing director at Asia Climate Partners, which invests in environmental-sector businesses. Even for funds who do make it a priority, the region’s limited pool of qualifying investments makes building a sustainable portfolio difficult, according to Prakash.
To win over managers in the region, Champagne plans to follow in the footsteps of WWF colleagues in Europe who’ve been pitching investors for six years. Focusing on the potential damage to portfolio companies from environment-related regulatory and reputational risks is one of the most effective ways to get money managers to listen, said Ray Dhirani, a London-based manager for sustainable finance and corporate risk at WWF.
There is some evidence that trying to improve the environmental impact of companies is good for shareholders. A study of investor engagements with businesses on environmental, social and governance issues by professors Elroy Dimson, Oguzhan Karakas and Xi Li found that target firms delivered annual returns about 2.3 percentage points higher than their benchmarks. Successful engagements related to climate change produced an extra return of 10.3 percentage points.
The 20 biggest equity funds in Asia with a mandate to consider environmental, climate or social issues returned an average 1 percent this year, versus a 5.1 percent drop in the MSCI Asia Pacific Index, according to data compiled by Bloomberg.
David Gaud, who helps oversee $59 billion as a fund manager at Edmond de Rothschild Asset Management, says he’s finding investment opportunities in China as the country steps up its focus on environmental issues. His firm’s holdings include CT Environmental Group Ltd., a Guangzhou-based wastewater treatment company, and Dynagreen Environmental Protection Group Co., an operator of waste incineration plants.
“China’s taking this much more seriously now,” Champagne said. “There’s a lot of pressure to make things happen. It won’t happen overnight, but my job is to accelerate that process.”