DBS Private Bank commits more than 50% of AUM to sustainability investments

• Client education is paying off with respect to ESG investments
• Greater interest in regional social enterprises among clients
• Competitors are going green too

DBS Private Bank aims to expand its sustainable investments to more than 50% of its total assets under management (AUM) by 2023. The bank’s sustainability portfolio currently stands at 41%. Its overall wealth management AUM (comprising Private Bank, Treasures Private Client and Treasures) is SGD 264 billion ($195.82 billion) as of 2020. One of its in-house products that focuses on sustainable investing raised over $690 million since it was launched in October last year.

Sustainable investments for DBS Private Bank are investments which are rated BBB and above, based on MSCI ESG Ratings. The bank plans to launch additional 10 products focused on sustainable investments by the end of 2021. Moreover, client portfolios will be reviewed by the bank through targeted advisory and recommendations.

Client education is paying off with respect to ESG investments

Keeping client engagement at the centre, DBS Private Bank also launched environmental, social and governance (ESG) focused web series to enhance investor knowledge. Joseph Poon, group head of DBS Private Bank said, “Clients are increasingly aware of the benefits of investing with an ESG lens – whether for risk diversification, long-term financial outperformance, or as a means to invest for good – which suggests that our ongoing efforts in client education and engagement are paying off”. This can be further corroborated with a report published last year by the Economist Intelligence Unit that showed the investors from Asia Pacific intend to increase their allocations to sustainability initiatives by more than two-thirds over the next one year. The bank is targeting to up the ante on sustainable investments and relaunched a new tranche of its ESG outperformance trade in 2020. “We are confident in the ESG proposition’s long-term potential,” said Poon.

Greater interest in regional social enterprises among clients

The bank also plans to support the social enterprise ecosystem by widening clients’ access to fund and develop them. Predominantly, it involves innovative tech leaders with breakthrough solutions that positively impact communities. There seems to be rising interest among investors to learn about social enterprises and the pandemic has only amplified this trend by unveiling social issues. In terms of growth of sustainable investments Poon claimed, “The pace of growth is being compromised as there is still no clear definition for sustainable investments today. There is also no single established industry benchmark to rate ESG. We decided to take the lead in challenging this status quo and were among the first in Asia to integrate MSCI ESG ratings into our products”. The industry grapples with the need for standardised benchmarks and taxonomy around ESG. This is accompanied by increased need to offer transparency among investors to make informed investment decisions.

Competitors are going green too

Other private banks have also followed suit and increased the focus on sustainability investments. Standard Chartered in its first published sustainable finance impact report disclosed that $3.2 billion of its sustainable assets are aligned to UN’s Sustainable Development Goals (SDGs). Last year the bank also launched “ESG select” a new review process to tackle concerns raised around the issue of green washing. Additionally, sustainable time deposit is also its new products for its clients. Recently the bank also provided HKD 5.29 billion ($680.95 million) green loan along with UOB to a Gaw Capital Partners-led consortium. HSBC has launched the Global Equity Climate Change Fund of Fund and has pledged to offer $100 billion to sustainable financing by 2025. Deutsche Bank Wealth Management has also adopted MSCI ESG rating to its sustainability portfolio. This suggests a rising demand among the corporate investors towards sustainability investments.

ESG: Trend or a long-term strategy

ESG investing is slowly gathering momentum in every geography and asset. The rising spotlight on ESG investments pushed global AUM to more than $1 trillion in 2020 according to Morningstar. A JP Morgan report stated that Asia-Pacific accounted for 2.4% of assets in sustainable funds, a small percentage but is growing gradually. However, along with the rising popularity of sustainable finance, there’s also increasing criticism. Mostly, the subjective nature of these metrices is a grey area yet to be tackled. In addition, standardisation of taxonomy under ESG also remains a point of contention. ESG investing took off during a bullish market, it would be interesting to see how sustainable it will remain. The record high capital that has been raised alludes to a longer term approach towards investing and not merely a trend.