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Family offices double down on ESG investing
Ultra-high-net-worth families in Asia are successfully marrying their focus on ESG with new technology as they step up their activity in private equity
Janette Chen 19 Jan 2022

Environmental, social and governance (ESG) considerations are becoming increasingly important for wealthy families in Asia, and they are looking into new technologies to ensure that their investments and business practices generate positive impact on society and the environment.

Sustainable investing is fast catching up among family offices globally, as they look to more than double their ESG allocations to 19% in 2025, from 9% in 2020, according to the latest UBS Global Family Office Report.

Exclusion-based strategies are now the most commonly used by rich families to address ESG issues, taking the highest 30% of family-office portfolios, the report finds.

This is in accord with the observation of Katy Yung, managing partner of Sustainable Finance Initiative (SFi), which represents a community of family offices from Hong Kong, Singapore and Taiwan with sustainable investing mandates across asset classes.

"Our members see ESG as a risk mitigation tool, factoring ESG across various considerations to achieve financial return objectives," Yung shares during a session of the Asian Financial Forum 2022.

At the same time, Yung observes that family offices also have a strong demand to generate positive impact more efficiently and reflect their family values.

These objectives have been expressed through philanthropy, but Yung sees more families starting to look for investments and good deals that are more coherent with their ESG objectives, especially given that many of these families are wary of the hypes that come with the trend.

Innovative deals

Happiness Capital, a venture capital firm founded in 2017 by the LKK Health Products Group (established by the Lee Kum Kee family in 1992), has done several innovative deals, applying technology to achieve their ESG objectives.

“We led the US$29 million series A round of Redefine Meat in Israel more than a year ago. It aims to revamp the entire meat production system, make it much more sustainable, and provide healthy but tasty food options,” shares Happiness Capital chief executive officer Eric Ng. “It has invented a 3D printing of plant-based meat that provides whole muscle cutting experience which gives you the same texture, same tastes, and even same cooking experience as real steaks.”

The impact can be tremendous. “With the technology, one 3D printer can replace 1,000 cows every year and we are building thousands of these 3D printers worldwide,” Ng says. “They have launched it in Israel and recently in Europe in November. We are waiting for them to probably come to Asia later this year."

He believes the undertaking will contribute a lot to reducing greenhouse gases and the use of water and land resources.

Ng’s team also invests in companies that convert carbon dioxide into high-quality protein for animal feed, and eventually for human consumption upon regulatory approval. “The technology is to suck out the CO2 from factories and the air to produce food,” Ng explains.

“We also invest in the world's most advanced fusion energy company called Commonwealth Fusion Systems. With a whole bunch of MIT scientists, it has solved very tough technical challenges with fusion energy production that a lot of people cannot solve in the past. It’s now able to scale up to produce completely clean energy to replace our fossil fuel energy production which can take out tonnes of carbon dioxide and pollution from our planet.”

Sustainable food

These projects are aimed at innovating sustainable food systems, which is among the five major investment objectives of Happiness Capital, the others being tackling climate change, improving both physical and psychological health, building trust, and reducing inequality.

“In our strategy, we consider financial return and happiness return as equally important to us. Both of them are in our annual and long-term [key performance indicators] and are also linked to our team’s compensation. For each of these five areas, we are trying to find deals and then we measure the financial return and also the happiness return generated from our investment,” Ng says.

On top of finding innovative deals, investors and family offices can also pursue advocacies. “Aside from making investments around sustainability and climate, some of our member families have done portfolio audits. They've hired a consultant to look into the carbon exposures of their stock holdings and their underlying companies,” Yung notes. “Some of our member families like the RS Group have given a grant to an organization called Conversions to open a funding window to incentivize fund managers so they can design blended finance vehicles for nature-based solutions.”

Yung says family offices in the SFi platform also invested in AMPD Energy, a Hong Kong start-up based in the Hong Kong Science Park that provides battery-powered generators, to replace diesel-powered generators used on construction sites to reduce carbon emission and noise pollution.

“How we got involved is when a number of our family offices participated in the seed round,” she explains. “We also stayed engaged as investors: we went on site visits, did due diligence and got to know Brandon [Ng], who is the founder, and offered referrals to add value." The company also recently expanded its footprint to Singapore. “As the company scales, we are hopeful and confident that it will continue to contribute to the decarbonization of the property sector.”

SFi focuses on themes such as climate change, food, plastics and water which are familiar to family offices, and also on other less-addressed themes such as gender, sustainable fashion, education technology, and affordable housing.

Investment opportunities with these less-addressed themes have already emerged in Southeast Asia markets, she says. In terms of asset classes, opportunities can be found in venture capital companies, later-stage private equity funds, and also some debt offerings.

Green buildings

Real estate tycoons like Hong Kong’s Lee Shau-kee are also actively generating ESG impact, but with a different focus. According to Johnny Yu, adviser to the chairman at Henderson Land Development, the company has a clear sustainability vision, which is to integrate sustainability into its daily business strategy in order to address major issues, namely climate risk, human wellbeing, the Covid-19 pandemic, as well as the living quality in the community.

Henderson Land has rolled out an ESG investment strategy called GIVE, which stands for "Green for planet, tech and social Innovation, Value for people, and Endeavour for community”, Yu says, noting that the strategy covers seven of the 17 UN Sustainable Development Goals.

As a property developer, the company is an active participant in providing green buildings. “We have been working on green buildings for over 10 years, starting from 2012.  Not only do we address the real-life reduction of carbon, water and waste, but also at the same time think about the indoor quality of the buildings, the health and wellness of our tenants within the building,” says Yu.

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