China position 2021: Sustaining institutional interest
China position 2021: Sustaining institutional interest
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The shifting landscape of global wealth: Future-proofing prosperity in a ti...
In some instances the impact of this shift will be shaped by local factors, such as demographic changes. In other instances this shift will reflect shared characteristics, as demonstrated by the greater popularity of overseas investing among younger high-net-worth individuals (HNWIs) brought up in an era of globalisation. Whatever the drivers, the landscape of wealth is changing—from local to global, and from one focused on returns to one founded on personal values.
Despite rising economic concerns and a tradition of investor home bias in large parts of the world, the new landscape of wealth appears less interested in borders. According to a survey commissioned by RBC Wealth Management and conducted by The Economist Intelligence Unit (EIU), younger HNWIs are substantially more enthusiastic about foreign investing. The U.S. is a particularly high-profile example of a country where a long-standing preference for investments in local markets appears set to be transformed.
Click the thumbnail below to download the global executive summary.
Read additional articles from The EIU with detail on the shifting landscape of global wealth in Asia, Canada, the U.S. and UK on RBC's website.
Fintech in ASEAN
To better understand the opportunities and challenges in developing a fintech business in seven ASEAN markets, The Economist Intelligence Unit conducted wide-ranging desk research supplemented by seven in-depth interviews with executives in Australia and ASEAN.
Download report and watch video interview to learn more.
Risks and opportunities in a changing world
Read our Taxing digital services, U.S. tax reform: The global dimension, & Planning for life after NAFTA articles by clicking the thumbnails below.
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The Hinrich Foundation Sustainable Trade Index 2018
Yet the enthusiasm in Asia for trade does not appear to have waned. This broad societal consensus behind international trade has enabled Asian countries to continue broadening and deepening existing trading relationships, for example, by quickly hammering out a deal for the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in early 2018 following the US’s withdrawal from its predecessor in 2017.
Asia, then, finds itself in the unique position of helping lead and sustain the global economy’s commitment to free and fair trade. It is in this context that the need for sustainability in trade is ever more crucial.
The Hinrich Foundation Sustainable Trade Index was created for the purpose of stimulating meaningful discussion of the full range of considerations that policymakers, business executives, and civil society leaders must take into account when managing and advancing international trade.
The index was commissioned by the Hinrich Foundation, a non-profit organisation focused on promoting sustainable trade. This, the second edition of the study, seeks to measure the capacity of 20 economies—19 in Asia along with the US—to participate in the international trading system in a manner that supports the long-term domestic and global goals of economic growth, environmental protection, and strengthened social capital. The index’s key findings include:
Countries in Asia, especially the richer ones, have broadly regressed in terms of trade sustainability. Hong Kong is developed Asia’s bright spot, recording a slight increase in its score and topping the 2018 index. Several middle-income countries perform admirably, led by Sri Lanka. For the economic pillar, countries generally performed well in terms of growing their labour forces as well as their per-head GDPs. For the social pillar, sharp drops for some countries in certain social pillar indicators contribute to an overall decline. For the environmental pillar, with deteriorating environmental sustainability in many rich countries, China, Laos and Pakistan are the only countries to record increases in scores. Sustainability is an ever more important determinant of FDI and vendor selection in choosing supply-chain partners. Companies are improving the sustainability of their supply chains by restructuring and broadening relationships with competitors and vendors.
The Global Illicit Trade Environment Index 2018
To measure how nations are addressing the issue of illicit trade, the Transnational Alliance to Combat Illicit Trade (TRACIT) has commissioned The Economist Intelligence Unit to produce the Global Illicit Trade Environment Index, which evaluates 84 economies around the world on their structural capability to protect against illicit trade. The global index expands upon an Asia-specific version originally created by The Economist Intelligence Unit in 2016 to score 17 economies in Asia.
View the Interactive Index >> Download workbook
Breaking Barriers: Agricultural trade between GCC and Latin America
The GCC-LAC agricultural trading relationship has thus far been dominated by the GCC’s reliance on food imports, specifically meat, sugar, and cereals. Over the past two years, however, there has been a notable decline in the share of sugar imported from LAC, and 2017 saw the biggest importers in the GCC—Saudi Arabia and the UAE—impose a ban on Brazilian meat.
Market players on both sides of the aisle are keen to grow the relationship further, but there are hurdles to overcome. In this report, we explore in greater depth the challenges that agricultural exporters and importers in LAC and the GCC face. We consider both tariff and non-tariff barriers and assess key facets of the trading relationship including transport links, customs and certification, market information, and trade finance.
Key findings of the report:
GCC will need to continue to build partnerships to ensure a secure supply of food. Concerns over food security have meant that the GCC countries are exploring ways to produce more food locally. However, given the region’s climate and geology, food imports will remain an important component of the food supply. Strengthening partnerships with key partners such as those in LAC, from which it sourced 9% of its total agricultural imports in 2016, will be vital to food security in the region.
There is a wider range of products that the LAC countries can offer the GCC beyond meat, sugar and cereals. Providing more direct air links and driving efficiencies in shipping can reduce the time and cost of transporting food products. This will, in turn, create opportunities for LAC exporters to supply agricultural goods with a shorter shelf life or those that are currently too expensive to transport. Exporters cite examples such as berries and avocados.
The GCC can engage small and medium-sized producers that dominate the LAC agricultural sector by offering better trade financing options and connectivity. More direct air and sea links can reduce the cost of transporting food products, making it viable for smaller players to participate in agricultural trade. The existing trade financing options make it prohibitive for small and medium-sized players too. Exporters in LAC suggest that local governments and private companies in the GCC can offer distribution services with immediate payments to smaller suppliers at a discount.
Blockchain technology is poised to address key challenges market players face in agricultural trade. Through a combination of smart contracts and data captured through devices, blockchain technology can help to reduce paperwork, processing times and human error in import and export processes. It can improve transparency, as stakeholders can receive information on the state of goods and status of shipments in real time. Finally, it can help with food safety and quality management—monitoring humidity and temperature, for instance, along the supply chain can help to pinpoint batches that may be contaminated, minimising the need for a blanket ban on a product.
The power of proximity: Localising supply chains in the Middle East
The power of proximity: Localising supply chains in the Middle East
Three decades of globalisation brought about by the proliferation of free trade agreements, investment liberalisation, and enhanced logistics have facilitated the geographic diversification of supply chains away from domestic markets. From the 1980s to the financial crisis in 2008, supply chains fanned out across the world as companies sought lower-cost locations for the sourcing of inputs and production.
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The Hinrich Foundation Sustainable Trade Index 2018
Yet the enthusiasm in Asia for trade does not appear to have waned. This broad societal consensus behind international trade has enabled Asian countries to continue broadening and deepening existing trading relationships, for example, by quickly hammering out a deal for the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in early 2018 following the US’s withdrawal from its predecessor in 2017.
Asia, then, finds itself in the unique position of helping lead and sustain the global economy’s commitment to free and fair trade. It is in this context that the need for sustainability in trade is ever more crucial.
The Hinrich Foundation Sustainable Trade Index was created for the purpose of stimulating meaningful discussion of the full range of considerations that policymakers, business executives, and civil society leaders must take into account when managing and advancing international trade.
The index was commissioned by the Hinrich Foundation, a non-profit organisation focused on promoting sustainable trade. This, the second edition of the study, seeks to measure the capacity of 20 economies—19 in Asia along with the US—to participate in the international trading system in a manner that supports the long-term domestic and global goals of economic growth, environmental protection, and strengthened social capital. The index’s key findings include:
Countries in Asia, especially the richer ones, have broadly regressed in terms of trade sustainability. Hong Kong is developed Asia’s bright spot, recording a slight increase in its score and topping the 2018 index. Several middle-income countries perform admirably, led by Sri Lanka. For the economic pillar, countries generally performed well in terms of growing their labour forces as well as their per-head GDPs. For the social pillar, sharp drops for some countries in certain social pillar indicators contribute to an overall decline. For the environmental pillar, with deteriorating environmental sustainability in many rich countries, China, Laos and Pakistan are the only countries to record increases in scores. Sustainability is an ever more important determinant of FDI and vendor selection in choosing supply-chain partners. Companies are improving the sustainability of their supply chains by restructuring and broadening relationships with competitors and vendors. The Global Illicit Trade Environment Index 2018
To measure how nations are addressing the issue of illicit trade, the Transnational Alliance to Combat Illicit Trade (TRACIT) has commissioned The Economist Intelligence Unit to produce the Global Illicit Trade Environment Index, which evaluates 84 economies around the world on their structural capability to protect against illicit trade. The global index expands upon an Asia-specific version originally created by The Economist Intelligence Unit in 2016 to score 17 economies in Asia.
View the Interactive Index >> Download workbook
Breaking Barriers: Agricultural trade between GCC and Latin America
The GCC-LAC agricultural trading relationship has thus far been dominated by the GCC’s reliance on food imports, specifically meat, sugar, and cereals. Over the past two years, however, there has been a notable decline in the share of sugar imported from LAC, and 2017 saw the biggest importers in the GCC—Saudi Arabia and the UAE—impose a ban on Brazilian meat.
Market players on both sides of the aisle are keen to grow the relationship further, but there are hurdles to overcome. In this report, we explore in greater depth the challenges that agricultural exporters and importers in LAC and the GCC face. We consider both tariff and non-tariff barriers and assess key facets of the trading relationship including transport links, customs and certification, market information, and trade finance.
Key findings of the report:
GCC will need to continue to build partnerships to ensure a secure supply of food. Concerns over food security have meant that the GCC countries are exploring ways to produce more food locally. However, given the region’s climate and geology, food imports will remain an important component of the food supply. Strengthening partnerships with key partners such as those in LAC, from which it sourced 9% of its total agricultural imports in 2016, will be vital to food security in the region.
There is a wider range of products that the LAC countries can offer the GCC beyond meat, sugar and cereals. Providing more direct air links and driving efficiencies in shipping can reduce the time and cost of transporting food products. This will, in turn, create opportunities for LAC exporters to supply agricultural goods with a shorter shelf life or those that are currently too expensive to transport. Exporters cite examples such as berries and avocados.
The GCC can engage small and medium-sized producers that dominate the LAC agricultural sector by offering better trade financing options and connectivity. More direct air and sea links can reduce the cost of transporting food products, making it viable for smaller players to participate in agricultural trade. The existing trade financing options make it prohibitive for small and medium-sized players too. Exporters in LAC suggest that local governments and private companies in the GCC can offer distribution services with immediate payments to smaller suppliers at a discount.
Blockchain technology is poised to address key challenges market players face in agricultural trade. Through a combination of smart contracts and data captured through devices, blockchain technology can help to reduce paperwork, processing times and human error in import and export processes. It can improve transparency, as stakeholders can receive information on the state of goods and status of shipments in real time. Finally, it can help with food safety and quality management—monitoring humidity and temperature, for instance, along the supply chain can help to pinpoint batches that may be contaminated, minimising the need for a blanket ban on a product.
Could Healthy China 2030 also be a blueprint for investment opportunity?
Could Healthy China 2030 also be a blueprint for investment opportunity?
China’s healthcare sector began privatising in the 1990s, along with the founding of special economic zones based on a famously repeated pledge not to worry about if a cat was white or black so long as it caught mice. Since then, a mostly healthy path of economic growth has played out in China, attracting international capital. In an Economist Intelligence Unit survey from November 2019, institutional investors and asset owners showed a bullish stance on the country, with 84% saying they had increased
More from this series
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The China position: Gauging institutional investor confidence
The China position: Gauging institutional investor confidence is an Economist Intelligence Unit report, comissioned by Invesco. It analyses results from a survey of 411 institutional investor and asset owner organisations (approximately 200 in Europe, Middle East and Africa, 100 in North America, and 100 from Asia-Pacific). The key findings of the survey are as follow:
A majority (nine in ten) of our survey respondents claim some level of dedicated exposure to China. Investments are growing; about half of respondents with dedicated China exposure report their investments have “risen significantly” in the past 12 months. Equities are the most-cited way organisations invest in China. Over 60% of respondents with dedicated China exposure report both equities and fixed income onshore holdings. Respondents cited improvements to their own China expertise as the top driver for dedicated investment exposure. Nearly four in ten respondents say environmental, social and governance (ESG) factors play a role in all of their investment decisions; fewer than three in ten say ESG is particularly important for China investments. Chinese asset classes in our survey could see increased investment from foreign organisations over the next 12 months, with respondents highlighting technology, financial services and “new economy” sectors as most attractive. Risk assessments are largely even across asset classes, but on a regional split respondents in APAC are more concerned than counterparts in North America or EMEA. Respondents are mixed on the impact of US-China trade tensions, with similar numbers expecting a positive or negative effect. But a majority of respondents report that their organisations expect to increase exposure over the next 12 months, regardless of outlook. About three-quarters of survey respondents say China’s economy will improve over the next 12 months; about two-thirds say the same for global economic conditions.Our thanks are due to the following individuals for their time and insights:
Jimmy Chang, chief investment strategist, Rockefeller Capital Management Mark Delaney, deputy chief executive and chief investment officer, Australian Super Kevin Wade, chief investment officer, Superannuation Arrangements of the University of London (SAUL)Download the report for more insights.
Infographic: The China position
China has now emerged as the world’s largest economy by purchasing power parity and is a market that investors cannot ignore. To learn more about the confidence level of institutional investor and asset owner organisations in China and the opportunities and concerns over the next 12 months, click here to download the full report.
The shifting landscape of global wealth: Future-proofing prosperity in a ti...
In some instances the impact of this shift will be shaped by local factors, such as demographic changes. In other instances this shift will reflect shared characteristics, as demonstrated by the greater popularity of overseas investing among younger high-net-worth individuals (HNWIs) brought up in an era of globalisation. Whatever the drivers, the landscape of wealth is changing—from local to global, and from one focused on returns to one founded on personal values.
Despite rising economic concerns and a tradition of investor home bias in large parts of the world, the new landscape of wealth appears less interested in borders. According to a survey commissioned by RBC Wealth Management and conducted by The Economist Intelligence Unit (EIU), younger HNWIs are substantially more enthusiastic about foreign investing. The U.S. is a particularly high-profile example of a country where a long-standing preference for investments in local markets appears set to be transformed.
Click the thumbnail below to download the global executive summary.
Read additional articles from The EIU with detail on the shifting landscape of global wealth in Asia, Canada, the U.S. and UK on RBC's website.
Does decoupling dampen or boost tech investment opportunity? Well it depends...
Does decoupling dampen or boost tech investment opportunity? Well it depends...
In the summer of 2019 The Economist Intelligence Unit asked global institutional investors and asset owners which sectors in China they found most attractive. Technology was cited by 58%,1 making it the top answer above financial or healthcare services. Although trade tensions had started ramping up at that time, a majority of survey respondents still expected to boost exposure to China’s economy.
Related content
The China position: Gauging institutional investor confidence
The China position: Gauging institutional investor confidence is an Economist Intelligence Unit report, comissioned by Invesco. It analyses results from a survey of 411 institutional investor and asset owner organisations (approximately 200 in Europe, Middle East and Africa, 100 in North America, and 100 from Asia-Pacific). The key findings of the survey are as follow:
A majority (nine in ten) of our survey respondents claim some level of dedicated exposure to China. Investments are growing; about half of respondents with dedicated China exposure report their investments have “risen significantly” in the past 12 months. Equities are the most-cited way organisations invest in China. Over 60% of respondents with dedicated China exposure report both equities and fixed income onshore holdings. Respondents cited improvements to their own China expertise as the top driver for dedicated investment exposure. Nearly four in ten respondents say environmental, social and governance (ESG) factors play a role in all of their investment decisions; fewer than three in ten say ESG is particularly important for China investments. Chinese asset classes in our survey could see increased investment from foreign organisations over the next 12 months, with respondents highlighting technology, financial services and “new economy” sectors as most attractive. Risk assessments are largely even across asset classes, but on a regional split respondents in APAC are more concerned than counterparts in North America or EMEA. Respondents are mixed on the impact of US-China trade tensions, with similar numbers expecting a positive or negative effect. But a majority of respondents report that their organisations expect to increase exposure over the next 12 months, regardless of outlook. About three-quarters of survey respondents say China’s economy will improve over the next 12 months; about two-thirds say the same for global economic conditions.Our thanks are due to the following individuals for their time and insights:
Jimmy Chang, chief investment strategist, Rockefeller Capital Management Mark Delaney, deputy chief executive and chief investment officer, Australian Super Kevin Wade, chief investment officer, Superannuation Arrangements of the University of London (SAUL)Download the report for more insights.
Infographic: The China position
China has now emerged as the world’s largest economy by purchasing power parity and is a market that investors cannot ignore. To learn more about the confidence level of institutional investor and asset owner organisations in China and the opportunities and concerns over the next 12 months, click here to download the full report.
The Hinrich Foundation Sustainable Trade Index 2018
Yet the enthusiasm in Asia for trade does not appear to have waned. This broad societal consensus behind international trade has enabled Asian countries to continue broadening and deepening existing trading relationships, for example, by quickly hammering out a deal for the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in early 2018 following the US’s withdrawal from its predecessor in 2017.
Asia, then, finds itself in the unique position of helping lead and sustain the global economy’s commitment to free and fair trade. It is in this context that the need for sustainability in trade is ever more crucial.
The Hinrich Foundation Sustainable Trade Index was created for the purpose of stimulating meaningful discussion of the full range of considerations that policymakers, business executives, and civil society leaders must take into account when managing and advancing international trade.
The index was commissioned by the Hinrich Foundation, a non-profit organisation focused on promoting sustainable trade. This, the second edition of the study, seeks to measure the capacity of 20 economies—19 in Asia along with the US—to participate in the international trading system in a manner that supports the long-term domestic and global goals of economic growth, environmental protection, and strengthened social capital. The index’s key findings include:
Countries in Asia, especially the richer ones, have broadly regressed in terms of trade sustainability. Hong Kong is developed Asia’s bright spot, recording a slight increase in its score and topping the 2018 index. Several middle-income countries perform admirably, led by Sri Lanka. For the economic pillar, countries generally performed well in terms of growing their labour forces as well as their per-head GDPs. For the social pillar, sharp drops for some countries in certain social pillar indicators contribute to an overall decline. For the environmental pillar, with deteriorating environmental sustainability in many rich countries, China, Laos and Pakistan are the only countries to record increases in scores. Sustainability is an ever more important determinant of FDI and vendor selection in choosing supply-chain partners. Companies are improving the sustainability of their supply chains by restructuring and broadening relationships with competitors and vendors.Sustainable and actionable: An ESG study of climate and social challenge for Asia
Sustainable and actionable: An ESG study of climate and social challenge for Asia
Along with its wealth, Asia’s climate risks have been rising. Low-lying coastal cities are particularly vulnerable to climate change and regional population and economic centres—such as Bangkok, Ho Chi Minh City, Manila and Shanghai—sit upon that precipice. Yet in terms of green fixed income, Asia faces another risk: lack of issuance and uptake.
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Data drives ESG investing—but too much data inspires greenwashing
Greenwashing—falsely attracting capital by claiming it will be used for sustainable projects—is the “fake news” of investing. The term has roots in the 1980s when it was aimed at big corporations that made symbolic “green” gestures but were nonetheless culpable for net contributions to pollution, or what we today call “climate change” (a greenwashed term itself that displaced “global warming”).
But with the growth of environmental, social and governance (ESG) investing, which now accounts for about 20% of global assets under management (AUM),1 the stakes are much higher.
“Greenwashing is a big issue,” says Remy Briand, global head of ESG products at MSCI. The finance firm is a major provider of investment indices and data, much of which is ESG focused. “The way to resolve this is through transparency on dedicated use of proceeds and robust third-party validation of that use.”
The mention of “transparency”, however, raises the question of how it’s to be achieved. The old answer might have been “more data”. But one problem the financial world faces is a lack of a global ESG taxonomy which means there is no data “gold standard”. Information can therefore be highly inconsistent, making comparison of companies and projects difficult. In turn, that deters investors and helps greenwashers. Many of Asia’s largest investors—the asset owners—such as the Asian Infrastructure Investment Bank, the Hong Kong Monetary Authority and Ping An Insurance, China’s biggest insurer, share this view (their perspectives are shared in The Economist Intelligence Unit report, Sustainable and actionable: An ESG study of climate and social challenge for Asia).
A question investors are starting to ask of ESG is “What’s so green about it?”
About 600 organisations claim to answer that question, Mr Briand comments. The multitude of data then can muddy the waters more than it clarifies. These entities are all trying to convince investors that they have built the best ratings mousetrap and go on to ask listed and private companies for widely diverging ESG data, exhausting both corporate patience and resources. Such an over-proliferation “can be an excuse to do nothing,” Mr Briand asserts.
With no overarching taxonomy to define “green” and an excess of providers and methodologies, the space between problems and solutions only gets wider. So the answer can’t be “more data”.
“The important point is that investors need to be explicit about the problem they are trying to solve,” says Mr Briand. For instance, a listed fishing company that operates unsustainably will see its supply collapse—and its business with it. Translating the scenario into conventional financial metrics such as default risk is called “materiality” and is seen by many investors as a more applicable approach.
Focusing on metrics can do more to influence ESG investment strategies and outcomes than the heavy data burden associated with proving ESG credentials. A shift in focus should help to address issues such as cost of capital which has hampered green bond uptake. It’s not that investors shun the green aspect, but when issuers have to jump through too many hoops to get a bond certified, they walk away. Bureaucracy comes at a cost and it’s a common complaint among issuers that they reap no reward for the extra effort of issuing a green-labelled bond. Again, the extra data leads to fewer green investment opportunities (but more greenwashing ones).
However, Mr Briand believes change may be on the way. He explains how MSCI has analysed issuers within its own green bond indices and found a difference between those with high green credentials and those with low. “Investors put a premium on those bonds issued by the former. So, regarding the question as to whether investors discriminate between the two, the answer is yes.” Higher demand, when seen as truly accomplishing a green goal, does translate into a lower cost of capital.
Having a grasp on materiality benefits investors because such company-level transparency can flag risks—from exposure to floods to regulatory action or labour disputes—that negatively impact value.
Data used in this way could overtake the need for green-labelled financial instruments and the related greenwashing potential. Greenwashing is akin to a cigarette manufacturer touting a one-off charitable donation to lung cancer research. It might look good in the data but we all know what the root cause is. Progress in leveraging capital against climate change depends on better linkage between green goals and quantifiable key performance indicators.
Investors need the ability to apply standardised data all the way through portfolios so that all AUM can be green, not just those with the right boxes ticked.
Special thanks to Remy Briand, global head of ESG products, MSCI for his insight and expertise on the topic.
For a deeper analysis on ESG, green credentials and greenwashing see Sustainable and actionable: An ESG study of climate and social challenge for Asia
1 US$17.5trn out of the US$79trn of total estimate from Boston Consulting Group and the US SIF Foundation, cited in the Financial Times, February 26th 2020. https://www.ft.com/content/e969217c-f001-11e9-a55a-30afa498db1b?segmentId=47561bcd-230d-6768-b4a1-deb6edc93a7b
Sustainable and actionable: A study of asset-owner priorities for ESG inves...
The world’s top 100 asset owners (AOs) represent about US$19trn in assets under management. The largest, and potentially most influential, proportion is in Asia—more than a third of the total. Out of the top 20 largest funds, three out of the first five and nearly half of the total are in Asia.
The Economist Intelligence Unit carried out interviews with some of Asia’s largest asset owner firms, development banks, sustainable investment organisations and influential industry advocates to determine how they saw the growth of environmental, social and governance (ESG) investing in Asia, as well as the AO role in it. In parallel, we review the latest research on ESG investing in the region to give an overview of sustainable investing in Asia. The main findings include:
There has been a significant change in the awareness, uptake and impact of ESG in Asia over the past three to five years. AOs are motivated by an increasing recognition that their investment decisions have material consequences for their environment and the lives of their beneficiaries. In terms of financial return, “governance” seems to be the most important ESG factor for most AOs, given its demonstrable link to optimising risk-adjusted returns. As in other regions, ESG investing began with a negative screening approach. While progress is accelerating, challenges remain. The shifting landscape of global wealth: Future-proofing prosperity in a ti...
In some instances the impact of this shift will be shaped by local factors, such as demographic changes. In other instances this shift will reflect shared characteristics, as demonstrated by the greater popularity of overseas investing among younger high-net-worth individuals (HNWIs) brought up in an era of globalisation. Whatever the drivers, the landscape of wealth is changing—from local to global, and from one focused on returns to one founded on personal values.
Despite rising economic concerns and a tradition of investor home bias in large parts of the world, the new landscape of wealth appears less interested in borders. According to a survey commissioned by RBC Wealth Management and conducted by The Economist Intelligence Unit (EIU), younger HNWIs are substantially more enthusiastic about foreign investing. The U.S. is a particularly high-profile example of a country where a long-standing preference for investments in local markets appears set to be transformed.
Click the thumbnail below to download the global executive summary.
Read additional articles from The EIU with detail on the shifting landscape of global wealth in Asia, Canada, the U.S. and UK on RBC's website.
Data drives ESG investing—but too much data inspires greenwashing
Related content
Sustainable and actionable: An ESG study of climate and social challenge fo...
Along with its wealth, Asia’s climate risks have been rising. Low-lying coastal cities are particularly vulnerable to climate change and regional population and economic centres—such as Bangkok, Ho Chi Minh City, Manila and Shanghai—sit upon that precipice. Yet in terms of green fixed income, Asia faces another risk: lack of issuance and uptake.
Fixed-income plays a significant role in climate mitigation because its market is about 60% larger than its equity cousin which still attracts more media and investor attention. Global issuance of green fixed income has increased markedly since its inception, reaching US$350bn in 2019. Still, the amount is only about 5% of the global fixed income market and represents just over a tenth of what needs to be raised to meet Sustainable Development Goals (SDGs) in emerging markets alone.
Efforts to make Asia’s finance greener have marked a transformative effect on the relationship between companies and investors. Conversations about sustainability that were absent a decade ago are now happening and have been central to helping the region come so far in such a short time: Asia’s banks and corporates have gone from 1% of green issuance in 2013 to 45% in 2019.
Still, not all is rosy (or green) as many obstacles remain. Asia’s green fixed income originates from a narrow base. China is the dominant market regionally and credit quality is largely confined to supranational institutions and investment-grade issuers. That is not enough. Other markets, such as high-yield, assetbacked securities (ABS) and private debt are, at best, in infancy. Furthermore, developedmarket investors tend to underweight Asia.
Green fixed income data is also a persistent challenge. A profusion of providers use a wide range of methodologies, many of which can be opaque and defy comparison. Investors face difficulties in determining those which best suit their needs. The vast amount of data that issuers are required to provide can also be a deterrent to going green; or worse, it leads to “greenwashing”, a vexing problem of questionable categorisation globally. The emergence of more consistent taxonomies is helping, but the patchwork of approaches still forms a barrier. Market practitioners interviewed for this paper did find agreement on green fixed income limitations, but they also showed optimism that recent developments in debt-products indicate a positive direction, even if the needle measuring progress has yet to move as far as it should.
From consensus, the region’s green fixed income progress depends on the development of a consistent taxonomy—not just in Asia, but globally—as well as better linkage of Paris Agreement goals to quantifiable key performance indicators (KPIs). The result could create better incentives for issuers and asset owners alike.
Have green bonds—as the largest green fixed income competent—been enough? Despite the interviewees’ breadth of experience and varied professional functions, they are almost entirely synchronised in their response to this question: “no”.
So what’s next?
Sustainable and actionable: A study of asset-owner priorities for ESG inves...
The world’s top 100 asset owners (AOs) represent about US$19trn in assets under management. The largest, and potentially most influential, proportion is in Asia—more than a third of the total. Out of the top 20 largest funds, three out of the first five and nearly half of the total are in Asia.
The Economist Intelligence Unit carried out interviews with some of Asia’s largest asset owner firms, development banks, sustainable investment organisations and influential industry advocates to determine how they saw the growth of environmental, social and governance (ESG) investing in Asia, as well as the AO role in it. In parallel, we review the latest research on ESG investing in the region to give an overview of sustainable investing in Asia. The main findings include:
There has been a significant change in the awareness, uptake and impact of ESG in Asia over the past three to five years. AOs are motivated by an increasing recognition that their investment decisions have material consequences for their environment and the lives of their beneficiaries. In terms of financial return, “governance” seems to be the most important ESG factor for most AOs, given its demonstrable link to optimising risk-adjusted returns. As in other regions, ESG investing began with a negative screening approach. While progress is accelerating, challenges remain. The shifting landscape of global wealth: Future-proofing prosperity in a ti...
In some instances the impact of this shift will be shaped by local factors, such as demographic changes. In other instances this shift will reflect shared characteristics, as demonstrated by the greater popularity of overseas investing among younger high-net-worth individuals (HNWIs) brought up in an era of globalisation. Whatever the drivers, the landscape of wealth is changing—from local to global, and from one focused on returns to one founded on personal values.
Despite rising economic concerns and a tradition of investor home bias in large parts of the world, the new landscape of wealth appears less interested in borders. According to a survey commissioned by RBC Wealth Management and conducted by The Economist Intelligence Unit (EIU), younger HNWIs are substantially more enthusiastic about foreign investing. The U.S. is a particularly high-profile example of a country where a long-standing preference for investments in local markets appears set to be transformed.
Click the thumbnail below to download the global executive summary.
Read additional articles from The EIU with detail on the shifting landscape of global wealth in Asia, Canada, the U.S. and UK on RBC's website.
A new era: global trade in 2020 and beyond
A new era: global trade in 2020 and beyond
The covid-19 pandemic will not only directly disrupt international trade but also catalyse other trends that are reshaping the global exchange of goods and services.
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The Hinrich Foundation Sustainable Trade Index 2018
Yet the enthusiasm in Asia for trade does not appear to have waned. This broad societal consensus behind international trade has enabled Asian countries to continue broadening and deepening existing trading relationships, for example, by quickly hammering out a deal for the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in early 2018 following the US’s withdrawal from its predecessor in 2017.
Asia, then, finds itself in the unique position of helping lead and sustain the global economy’s commitment to free and fair trade. It is in this context that the need for sustainability in trade is ever more crucial.
The Hinrich Foundation Sustainable Trade Index was created for the purpose of stimulating meaningful discussion of the full range of considerations that policymakers, business executives, and civil society leaders must take into account when managing and advancing international trade.
The index was commissioned by the Hinrich Foundation, a non-profit organisation focused on promoting sustainable trade. This, the second edition of the study, seeks to measure the capacity of 20 economies—19 in Asia along with the US—to participate in the international trading system in a manner that supports the long-term domestic and global goals of economic growth, environmental protection, and strengthened social capital. The index’s key findings include:
Countries in Asia, especially the richer ones, have broadly regressed in terms of trade sustainability. Hong Kong is developed Asia’s bright spot, recording a slight increase in its score and topping the 2018 index. Several middle-income countries perform admirably, led by Sri Lanka. For the economic pillar, countries generally performed well in terms of growing their labour forces as well as their per-head GDPs. For the social pillar, sharp drops for some countries in certain social pillar indicators contribute to an overall decline. For the environmental pillar, with deteriorating environmental sustainability in many rich countries, China, Laos and Pakistan are the only countries to record increases in scores. Sustainability is an ever more important determinant of FDI and vendor selection in choosing supply-chain partners. Companies are improving the sustainability of their supply chains by restructuring and broadening relationships with competitors and vendors. The Global Illicit Trade Environment Index 2018
To measure how nations are addressing the issue of illicit trade, the Transnational Alliance to Combat Illicit Trade (TRACIT) has commissioned The Economist Intelligence Unit to produce the Global Illicit Trade Environment Index, which evaluates 84 economies around the world on their structural capability to protect against illicit trade. The global index expands upon an Asia-specific version originally created by The Economist Intelligence Unit in 2016 to score 17 economies in Asia.
View the Interactive Index >> Download workbook
Breaking Barriers: Agricultural trade between GCC and Latin America
The GCC-LAC agricultural trading relationship has thus far been dominated by the GCC’s reliance on food imports, specifically meat, sugar, and cereals. Over the past two years, however, there has been a notable decline in the share of sugar imported from LAC, and 2017 saw the biggest importers in the GCC—Saudi Arabia and the UAE—impose a ban on Brazilian meat.
Market players on both sides of the aisle are keen to grow the relationship further, but there are hurdles to overcome. In this report, we explore in greater depth the challenges that agricultural exporters and importers in LAC and the GCC face. We consider both tariff and non-tariff barriers and assess key facets of the trading relationship including transport links, customs and certification, market information, and trade finance.
Key findings of the report:
GCC will need to continue to build partnerships to ensure a secure supply of food. Concerns over food security have meant that the GCC countries are exploring ways to produce more food locally. However, given the region’s climate and geology, food imports will remain an important component of the food supply. Strengthening partnerships with key partners such as those in LAC, from which it sourced 9% of its total agricultural imports in 2016, will be vital to food security in the region.
There is a wider range of products that the LAC countries can offer the GCC beyond meat, sugar and cereals. Providing more direct air links and driving efficiencies in shipping can reduce the time and cost of transporting food products. This will, in turn, create opportunities for LAC exporters to supply agricultural goods with a shorter shelf life or those that are currently too expensive to transport. Exporters cite examples such as berries and avocados.
The GCC can engage small and medium-sized producers that dominate the LAC agricultural sector by offering better trade financing options and connectivity. More direct air and sea links can reduce the cost of transporting food products, making it viable for smaller players to participate in agricultural trade. The existing trade financing options make it prohibitive for small and medium-sized players too. Exporters in LAC suggest that local governments and private companies in the GCC can offer distribution services with immediate payments to smaller suppliers at a discount.
Blockchain technology is poised to address key challenges market players face in agricultural trade. Through a combination of smart contracts and data captured through devices, blockchain technology can help to reduce paperwork, processing times and human error in import and export processes. It can improve transparency, as stakeholders can receive information on the state of goods and status of shipments in real time. Finally, it can help with food safety and quality management—monitoring humidity and temperature, for instance, along the supply chain can help to pinpoint batches that may be contaminated, minimising the need for a blanket ban on a product.
Untapped Capital: understanding the retail investor pool
Untapped Capital: understanding the retail investor pool
Untapped capital: Understanding the retail investor pool is written by The Economist Intelligence Unit and sponsored by PrimaryBid. In-depth interviews with financial market experts were conducted in addition to extensive desk research and data analysis.
Key Findings:
• Europe has witnessed a recovery in retail ownership of listed companies since the 2008 financial crisis. European households own 15.6% of listed shares across EU and UK stock exchanges, up from 13.3% in 2013 and 12.7% in 2007
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