HKUST Business School Magazine

Examples abound of Asian family businesses riding the wave of sustainable and green finance. Ayala Corporation, a Philippine-based conglomerate, has a long history of environmental and social stewardship and has made sustainability a core part of its business strategy. In 2014, Ayala launched its first green bond, which raised US$225 million for renewable energy and energy efficiency projects. Ayala has also integrated ESG factors into its investment decision-making processes and has set ambitious sustainability targets for its business operations. Another example is the Lee Kum Kee Group, a Hong Kong-based condiment manufacturer. Lee Kum Kee has a strong commitment to sustainability and has implemented a range of initiatives to reduce its environmental impact. In 2018, Lee Kum Kee issued its first green bond, which raised US$150 million for sustainable agriculture and food safety projects. The bond was oversubscribed, indicating strong investor demand for sustainable finance in Asia. Part of the attraction of sustainable and ESG financing is the pricing advantage. According to Global Capital, the greenium available in APAC was up to 10 bps in 2022, lower than Europe’s 25 bps but growing. In addition, issuers benefit from better execution. According to Global Capital, “in dollars globally, the average oversubscription was 3.8 times for green bonds and 2.7 times for vanilla deals, according to JP Morgan. Spread compression averaged 29.3bp for green bonds and 22.5bp for vanilla bonds. ESG deals attracted high- quality orderbooks and showed more resilience in the secondary market”. A study by CBI (Climate Bond Initiative) in October 2022, also found that green bonds offer pricing benefits and better liquidity. Despite the growing interest in sustainable finance among family businesses in Asia, there are still significant challenges to overcome. One challenge is the lack of standardized ESG reporting and disclosure requirements in the region. This makes it difficult for investors to compare the sustainability performance of different companies and assess the impact of their investments on ESG outcomes. To address this challenge, there have been efforts to develop regional ESG reporting and disclosure standards. The ASEAN Corporate Governance Scorecard, for example, includes ESG factors in its assessment of corporate governance practices. The Sustainable Stock Exchanges initiative, which includes stock exchanges in Asia, has also developed guidance on ESG reporting and disclosure. 3 – Generational Impact As businesses are transitioning from first generation to second or third generation, the role of the “NextGen” in pushing through a sustainability agenda cannot be underestimated. In PwC’s Global NextGen Survey 2022 of more than 1,036 NextGens, 59% said they believed their own family business was moving too slowly on sustainability, and 72% said they expected to be involved in increasing their family business’ focus on investments for sustainability in the future. But only 28% are involved right now. Top of focus is business growth. Despite a cross-generational focus on growth, younger generations are focusing on sustainability. Many of these ambitions are deployed through their family offices. Part of the attraction of sustainable and ESG financing is the pricing advantage Insight Biz@HKUST 46