Hong Kong’s family offices need to be aware of risks as they invest more in environmental, socially beneficial projects, experts say

positive impact on society, ESG investment, ESG projects

Family businesses in Hong Kong are increasingly keen to invest in projects that have strong environmental, social and corporate governance (ESG). But they must have a proper governance structure of their own in place to manage the risks and avoid conflict between family members, analysts said.

The younger generation of the family businesses are more willing to invest in projects that can help crack down on pollution or have a positive impact on society, according to a survey by PwC last week.

Sixty-seven per cent of mainland family business executives have developed sustainability strategies as part of their business decisions, while 39 per cent of Hong Kong family business executives have done so. Both are higher than the global average of 37 per cent..

The survey, conducted every two years, polled more than 2,800 family businesses in 87 markets towards the end of last year.

The demand for a solid governance mechanism has increased as the pandemic has raised more awareness of ESG investment, said Kwan Chi-man, founder and chief executive of Raffles Family Office.

“While family businesses are more interested in investing in ESG projects, it is very important for them to have a proper governance structure in place to manage the risks and avoid conflicts and disagreements between family members,” he said.

Kwan, who set up Raffles Family Office in Hong Kong in 2016, later expanding it to Singapore and Shanghai, now invests for about 150 wealthy families.

“Different family members may have different views on where to invest or donate family wealth. For example, differences may arise among the second generation of a family with two siblings, where one may like to donate family money to an organisation benefitting children, while the other may want to contribute to a charity for animals. They may have an argument if no proper arrangement is in place,” Kwan said in an interview with the Post.

“The risks of internal arguments and conflicts would be bigger if there are more members in the family.”

Raffles Family Office appointed two independent professionals in March to form an independent advisory board to help wealthy family members invest in different ESG projects and donate to different charities.

John Wong, PwC’s China and Hong Kong family business and private client services leader, said Hong Kong family offices today are not only focused on succession planning. They are also developing ESG investment strategies to match global investment trends, and executing the families’ philanthropic responsibilities.

“The motivation for family firms to raise their ESG profile has further grown in light of the pandemic. The public health crisis has shown how quickly a high-impact, low-probability event can disrupt business as usual,” Wong said in an interview.

“Family businesses that are not showcasing their commitment to their stakeholders and society will likely be at a higher risk of getting left behind or even penalised for their inaction.”

He pointed out that stakeholders and regulators are demanding that business enterprises be more accountable for their actions towards the planet and society and are punishing those that do not comply.

“Therefore, family businesses are encouraged to live up to stakeholders’ expectations by embedding ESG into their strategies and business operations,” Wong said.

Hong Kong Exchanges and Clearing, which operates Asia’s third largest stock market, introduced ESG requirements for all listed companies last summer, requiring them to report their governance structure and make sure it complies with regulations.

ESG concerns have come to the fore as China and other governments in the region have unveiled plans to be carbon-neutral by 2050 or 2060.

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