HKUST Business School Magazine

Despite the impressive growth of sustainable and green finance, it still only represents a modest fraction of the overall financial markets, and still only a small part of the climate financing needs, which have been estimated at US$50 trillion by the World Economic Forum. McKinsey estimates that the net zero transition will require approximately US$9.2 trillion per year, a total of US$275 trillion. (source: McKinsey 2022 Year in Review) The rise of sustainable and green finance is evidenced in the following developments (source: S&P Sustainability Focus 2023). • On the issuance size, the sustainable debt and credit market has been estimated between US$1 and 3 trillion as of year end 2021, according to data compiled by Refinitiv and Bloomberg. • Issuance of Green Social Sustainable and Sustainability-Linked Bonds (GSSSB) has increased globally and in Asia Pacific region (APAC), picks up after a dip in 2022 resulting from difficult market conditions overall in fixed income, and the GSSB share of the overall bond market continues to increase • Focusing on APAC, the rise of sustainable finance has accelerated, with China the dominant player (sources: S&P and Moody’s) • On the buy side, sustainable investing assets have been estimated at US$35 trillion globally as of 2021; the number of signatories of the Principles for Responsible Investment (PRI) Group continues to increase • In a recent report Morgan Stanley estimated that sustainable funds have reached more than US$3.1 trillion or 8% of total global assets under management, with 89% in Europe, 10% in America and less than 2% in other regions. Asia still only accounts for 7% of the number of sustainable funds. • According to Morningstar the number of sustainable open-end funds and ETFS continues to grow significantly, driven by Europe • While significantly lower than other regions, the growth of sustainable funds in Asia ex-Japan continues, driven by China and Singapore According to S&P, climate mitigation is a key focus for issuers in Asia Pacific, dominated by renewable energy, green buildings, energy efficiency and transportation. Most importantly, many businesses are now realizing that climate change creates natural catastrophe risks to business continuity that may no longer be insurable. Nevertheless climate adaptation and transition present many opportunities: McKinsey estimates US$12 trillion of yearly opportunities from Net Zero plans across various industries. The rise of sustainable finance is the current manifestation of a deep evolution from shareholder capitalism to stakeholder capitalism that started in the 1980s with the “triple bottom line” coined by John Elkington, and which has accelerated under the twin impacts of climate change acceleration and the Covid-19 pandemic. The “triple bottom line” (profits, people, planet) was based on the notion of “creating shared value”. This principle of shared value is integrated in the concept of shareholder capitalism (Business Roundtable) and is familiar to family businesses as it is integral to their family values. Part II: Family Business and Sustainability 1 - A matter of values The very definition of sustainability ”meeting the needs of the present without compromising the ability of future generations to meet their own needs” aligns with the core intent of family businesses who are created and maintained with future generations in mind, balancing economic prosperity with legacy. Now a business imperative for businesses globally, sustainability is already embedded in family businesses values, positioning them to benefit from first mover advantage, according to a recent KPMG/STEP report. For many family businesses, sustainability is already a “road well-traveled” (source: KPMG/STEP). For example, in Hong Kong, companies like CLP, Swire and Esquel developed frameworks and targets decades before “sustainability” became a buzzword. With the latest developments, sustainable finance provides a framework for family businesses large and small to align their financial activities with their values and contribute to sustainable development. 2 - APAC rises Family businesses in Asia are increasingly recognizing the importance of sustainable finance. According to a survey by UBS, 77% of family businesses in Asia believe that ESG factors are important to their investment decisions. This is in line with global trends, where sustainable finance is becoming an increasingly important consideration for investors. Biz@HKUST 45