Last week, a now suspended HSBC executive slammed the industry’s overemphasis on climate change as a top, immediate priority. This is not an uncommonly held view amongst financial professionals, especially in Asia.

Days after HSBC Asset Management’s global head of responsible investing Stuart Kirk spoke at a recent conference, calling out the industry’s overemphasis on climate change, top leaders of the British lender were quick to distance themselves from his comments before a subsequent suspension.

The outrage that followed is hardly surprising given HSBC’s consistent positioning as a major supporter of green finance in a modern era of unprecedented attention placed on global warming. 

Yet although not often expressed in public, Kirk's view that there is excessive climate focus in an industry with higher immediate priorities elsewhere from the perspective of both financial professionals and their clients – for better or worse – is far from rare. This is especially the case in Asia where many individuals and families take a distinctly different approach as philanthropists, investors and business owners.

Client-Driven Disinterest

This is not to say that Asia does not care about issues like environmental or social risks. Rather, many individuals in the region choose to pursue specific goals with a siloed, dedicated efforts rather than a broad-based approach where values and beliefs are reflected in all facets of life, including investments, diet, fashion and more.

A successful businessperson in the region may choose to open a charity to address specific issues, such as gender equality, without ever imposing such ideals on his or her other entities with methods like the implementation of diversity-related policies.

«It is very common for the ultra-wealthy in Asia to tackle issues head-on through private initiatives they established themselves to directly address real world problems that are close to their heart,» an unnamed investment advisor at a Hong Kong-based family office told finews.asia. «But they are less of a believer of making such changes through public markets, especially when compared to their western counterparts. They believe that financial markets should be utilized for financial reasons.»

Efficient Frontier

In addition, Asian investors have significantly higher expectations for financial returns compared to their western counterparts, especially after years of strong economic growth that rapidly fuelled wealth generation in the region.

While banks and asset managers have spent endless resources promoting the ability to match returns while excluding certain sectors, the fact of the matter is that the efficient frontier – defined in modern portfolio theory as the combination of assets that results in optimal risk-adjusted performance – is best achieved by having the widest universe of investments at one’s disposal. 

The financial benefit of this optionality has recently been on display as a spike in energy prices, driven in part by the Russia-Ukraine conflict, has created strong returns in the oil and gas sector. Year-to-date, the SPDR S&P Oil & Gas Exploration & Production ETF, for example, is up more than 50 percent compared to an around 13 percent drop in the MSCI World index.

«If everyone sells oil – not for some real economic reason but simply because of their personal beliefs – then I will buy oil because the market has unfairly discounted the price,» said an unnamed senior private banker focused on the China market. «I’m not saying my clients don’t think or care about the environment. But they won’t easily give up on opportunities to make returns whenever they come around.»

Fiduciary Responsibility

Perhaps the most important factor to consider for industry professionals, as well as onlookers, is not grand ideas like human morality or theoretical efficiency, but rather fiduciary responsibility to clients.

«Could I, in good conscience as a financial advisor, say that my client should risk returns planned for funding his daughter’s enrolment in her dream Ivy League school to instead contribute to long-term climate change efforts? What about delaying his personal retirement in order to support childhood education in developing economies?» asks a relationship manager at a Singaporean private bank.

«I can be a moral crusader outside of work but I was hired as a banker to take care of clients’ financial interests. It is, after all, their own money.»

Maybe Unpopular, But True

Deliberate or not, Kirk’s style of presentation – he said in his speech that «there was always some nut job telling me about the end of the world» and compared climate issues with the hysteria behind the Y2K bug that never happened – was not the strongest display of prudent public relations, despite HSBC reportedly approving the content internally.

Nonetheless, it does not change the fact of the matter that clients of financial institutions have vastly diverse and complex needs while their advisors have the ethical responsibility to best help them meet their objectives – assuming they comply with local laws and regulations  – even if they are not aligned or contributing to certain values or beliefs. 

«I work at a bank that is being attacked by crypto, we’ve got regulators in the U.S. trying to stop us, we’ve got the China problem, we’ve got a housing crisis looming, we’ve got interest rates going up, we’ve got inflation coming down the pipes and I’m being told to spend time and time again looking at something that is going to happen in 20 or 30 years hence,» said Kirk said. «The proportionality is completely out of whack.»