Patricia Dwyer on China’s leapfrog sustainability moment
Hong Kong-based Patricia Dwyer is an ESG trailblazer who founded sustainable business consultancy The Purpose Business in Hong Kong. She explains how increased emphasis on responsible investing is starting to change the business landscape in Asia.
China is enjoying a boom in ESG investing. Finance giant Ping An’s ESG Investing in China report – published in November 2020 – found that capital flows into ESG-themed exchange traded funds (ETFs) in China shot up by 464% between 2018 and 2019, and the total issuance of ESG-themed funds there doubled from 2019-2020. The number of Chinese investors, asset owners and investment managers who have signed the UN-backed Principles for Responsible Investing initiative increased from seven in 2017 to 51 by 2020.
The ‘E’ of ESG is also top of the country’s political agenda, thanks in no small part to climate change. President Xi Jinping’s commitment to achieve net zero carbon emissions by 2060 has galvanised a raft of companies and investors to set their own carbon-related goals, spending billions on low-carbon energy projects and using AI and solar power to tackle emissions.
But the country still lags on many global sustainable investing measures – Chinese companies have an average rating of 1.5 out of 5 on the FTSE4Good index, compared to averages for the emerging and developed markets of 2.1 and 3, respectively. Could this powerful combination of green capital and government policy be a potential leapfrog moment for sustainability in Chinese business? C-suite awareness is certainly growing fast, says The Purpose Business founder and director Patricia Dwyer. “Asia is late to the party, but it is still the biggest global growth region. There is now no new capital that doesn’t consider ESG in its due diligence, and I don’t think there are any leadership conversations that don’t mention ESG.”
Ping An’s research also found that ESG funds of all kinds outperform the market, with annualised returns of between 47% and 70% depending on the nature of the fund, compared to an average for all Chinese equity funds of 42%. Consequently boardrooms and business leaders are waking up to the realisation that doing good can also mean doing well. “If you look at the maturity curve, it’s a shift from businesses managing their costs – swapping light bulbs for LEDs, or double glazing the windows for example – and regulatory compliance, to thinking about how to use business operations to create a positive impact on society. From just using environmental issues to help manage the bottom line to how a business can really do good and still be very much profitable,” says Dwyer.
And while many of the smaller private firms that the region is known for might be insulated from investor attitudes by their ownership structure, they will not be immune to the requirements of important customers. “If you’re a small privately owned manufacturer in Hong Kong, the pressure may not be coming from your investors, but it is coming from wherever the end customer is. If you’re making clothes for example, or zippers for luxury bags, your client – whether that is Gap, LVMH or Chanel – is going to demand this,” says Dwyer. And those who cannot provide the required guarantees – around provenance of supply and environmental impact, but also labour standards and working conditions – risk being unceremoniously replaced by those who can.
Dwyer – previously global head of corporate social responsibility (CSR) and sustainability for Shangri-La Hotels and Resorts, and the first head of CSR for Ayala Land in the Philippines – quit a successful corporate career to set up her own business in 2015, advising companies on how best to take advantage of the burgeoning interest in sustainability. “There was always a struggle between the regular course of business and ‘doing good’ on the side. The two parallel streams never met. Allocating 2% to do good with no traceability whatsoever – that just did not sit right.”
Now she is activating her own personal sense of purpose by helping her clients to pursue theirs. Clients including major airlines and prominent luxury hotel brands seek advice on everything from effective environmental reporting and disclosure frameworks to the practicalities of how to minimise plastics use and make the most of renewable energy. Their priorities are evolving fast, Dwyer says. “For the first couple of years it was reporting, then it was climate-related financial disclosures – which have a deeper sense of transparency and are really assessing risk from an ESG perspective. Now it’s net zero [China's pledge to achieve carbon neutrality by 2060]. What does net zero actually mean, and how do I have to change my normal course of business so that 2060 actually happens? Clients’ needs are maturing and they are asking harder and harder questions.’”
So if the ‘E’ of ESG is becoming ever more mainstream, what’s her advice on the next step for investors who really want to make an impact in Asia? “Post-pandemic, look at the ‘S’ – social – not just the environmental. Covid has really highlighted equal pay, community impact, welfare – no business is going to rise as a leader in sustainability without addressing these softer people issues and cultural taboos. If investors really want to make an impact, I say go straight for the ‘S’.”
2008: Joined Shangri-La Group as its first head of CSR and sustainability
2012: Issued the Group’s first sustainability report, paving the way for Shangri-La to join the UN Global Compact and be recognised by the Dow Jones Sustainability Index
2015: Founded The Purpose Business; named a Young Global Leader by the World Economic Forum; completed the Transformational Leadership certificate at the University of Oxford
2016: Joined the World Economic Forum’s Global Agenda Council on Oceans
2018: Completed the Global Leadership & Public Policy for the 21st Century programme at Harvard University
2019: Joined the board of Hong Kong-based charity Enrich
2021: The Purpose Business expands to have advisors based in the UK and USA