ESG an 'investment culture' for businesses

There is also growing demand from investors. Foreign investors have to meet their fund's respective domicile standards on ESG when investing in Chinese assets, spurring Chinese companies to place a greater focus on sustainable operations. "If you don't, asset owners will go away," he warned.

A new regulation, Sustainable Finance Disclosure Regulation, which took effect in Europe this year, also has a direct or indirect impact on Hong Kong managers by influencing fund management, Kwan said.

The new regulation establishes a set of rules in a bid to make the sustainability profile of funds more straightforward and create a transparent level playing field to eliminate "greenwashing", in which some financial firms claim that their products are sustainable but, in reality, they're not.

"It has a cross-territory impact on Hong Kong managers, nudging them to equip themselves seriously in terms of ESG integration," Kwan said. The spirit of ESG in Europe is not only about producing a better quality-returns portfolio, but also more about nurturing a sustainable development culture in the economy and society, he said.

To shape a sustainability climate embedded with an ESG concept across all industries in Asia, responsible investors and participants in the capital market must be more actively engaged with companies they invest in to raise ESG standards, Kwan said. He encourages investors to work together with the invested companies to identify their inadequacies on the ESG front and work out solutions to fix them. Only by doing that can investors help spread the ESG message across the board, upgrading ESG standards, motivating companies to go sustainable in their operations and ultimately fostering a more-sustainable economic growth in the country, he said.

In the past few years, Harvest Global Investments has built up a localized ESG analytical framework that can identify the key ESG issues of companies in China. "We've already incorporated ESG consideration in our company's research process. And we place ESG integration at the center of our investment process for our offshore clients as they demand high standards of ESG investing in China," Kwan said.

The company uses its own ESG evaluating system, which contains 23 indicators and over 110 metrics, to rate companies on their respective ESG performances so that it can help its clients make informed decisions on investment.

Having grown in tandem with Chinese markets for 13 years, Harvest Global Investments said that now is the prime time to unleash the asset-management potential on the mainland.

Kwan welcomed the Cross-boundary Wealth Management Connect and the Bond Connect programs launched in the Guangdong-Hong Kong-Macao Greater Bay Area, saying they'll benefit Hong Kong and mainland investors by "broadening and diversifying the range of products for investment". "The programs are also new channels for investors on both sides and have set up a good infrastructure," he said.

How effective the programs will be will depend much on whether the investment products can cater to investors on both sides of the border. "I'm sure that ESG-framed investment products will gain greater momentum within a short time," Kwan said, adding that the recent phenomenon of "renewable energy, electric vehicles and innovations that combat climate change were popping up".

The trend is a sure thing, driven further by the fact that more managers are embracing the mindset of incorporating ESG in their research and investment decisions, Kwan said.

"Ultimately, it'll have a massive impact on the overall investment criteria. ESG is an emerging investment culture that everyone in the business and financial industry will partake in."