RS Group: Total Portfolio Management

Stewarding wealth for the common good: How an Asian family office incorporated climate change mitigation into its portfolio
Katy Yung and Ivo Knoepfel
Alliance magazine 17/02/14 (article link)

'From an Asian perspective, climate change is not a distant threat – it is happening today. I want to make sure that the way my capital is invested is part of the solution and not the problem.'

So says Annie Chen, founder of RS Group, a Hong Kong-based family office. Air pollution in Beijing, bushfires in Australia and typhoons in the Philippines underline her remarks. Consequently, RS Group incorporates climate change considerations in all its activities and across asset classes, with the dual goal of contributing to climate change mitigation and ensuring its investment portfolio is fit for the future.

RS Group uses a 'total portfolio management' approach, under which all of its activities, from strategic philanthropy to capital management, support its mission of contributing to sustainable development. Since 2009, it has built a globally diversified portfolio managed by over a dozen external asset managers (typically 3-4 per asset class). At the moment, sustainable strategies make up over 70 per cent of its investments. In the coming years, legacy private equity investments will be replaced by sustainable and impact strategies, bringing RS Group closer to its goal of a 100 per cent sustainable allocation. Philanthropic capital is also used to support transformative ideas on sustainable development, especially in the Asian region, while at the same time empowering people and communities in building a more balanced, productive and just society. RS Group takes a long-term horizon (typically 7-10 years) when constructing its portfolio to achieve returns in line with its mission.

About Annie Chen
Born in Hong Kong and educated in the US, Annie Chen is the founder and chair of RS Group, her family office, which is physically housed within a broader family office shared among her parents and siblings across three generations. Since 2008, she has been working on incorporating her own values into her private portfolio through RS Group towards the goals of sustainable development.

Climate change strategy
Recognizing the importance of climate change to sustainability, RS Group sought ways in which different parts of its portfolio could contribute to climate change mitigation and adaptation. The challenge was to select measures that would lead to a tangible impact without substantially changing risk and return levels of the overall investment portfolio. The Group devised a three-part strategy:
• Support (invest in climate change solutions)
• Avoid (divest from fossil fuel-intense industries)
• Engage (engage with investment holdings and share experiences with the broader community)

Support

'My team has found that integrating the climate change issue across the whole portfolio and across all asset classes is indeed possible and makes financial sense if you are a long-term investor.'

- Philanthropy
Grants have been given to two groups, Carbon Tracker Initiative and ADM Capital Foundation, that are working on issues related to climate change globally and locally. Carbon Tracker is assessing the systemic risks of unburnable carbon for China's capital markets and raising awareness among global and Asian investors (see box). ADM Capital Foundation, the philanthropic arm of a Hong Kong-based asset manager, is partnering with RS Group to provide strategic and operational support to environmental NGOs such as Clean Air Network and China Water Risk in Hong Kong. These partnerships also provide RS Group with helpful insights that inform its investment activities and engagement with fund managers.

Carbon Tracker Initiative
A UK-based NGO whose mission is to align capital markets with the climate change agenda. It aims to highlight the carbon risk in equity markets by identifying the scale of unburnable carbon on stock exchanges around the world and the implications for companies and investors. Their recently published report Unburnable Carbon 2013: Wasted capital and stranded assets shows up the mismatch between the carbon embedded in global coal, oil and gas reserves on major stock exchanges (762GtCO2) and the global carbon budget to limit global warming to 2°C (125-225GtCO2). This suggests that companies' existing valuations and risk assumptions (representing up to US$1.27 trillion in debt and US$4 trillion in equity) may have overlooked the implications of unburnable carbon. Future development of high-cost fossil fuel projects should also be reviewed to protect shareholders' interest. The report includes a list of recommendations for action targeting policymakers, financial intermediaries and investors.

- Listed equity
For large-cap equity, RS Group is invested in funds such as Generation Global Equity fund and First State Global Emerging Markets Sustainability fund, which incorporate climate change risks and opportunities when selecting and evaluating companies. For small and mid-cap equity, the Group looks to specialist funds like Impax Environmental Markets fund which invests in companies that are focused on energy efficiency improvements, renewable energy use, water treatment, and recycling. Almost 10 per cent of RS Group's capital is allocated to companies developing innovative solutions to the climate change challenge, a figure that will further increase once other investments are implemented.

- Private equity
RS Group is invested in a PE fund (SJF Ventures III Fund) which provides growth capital to North American companies developing solutions in energy efficiency, sustainable food and agriculture, and efficient material use. There are also investments in funds which target bottom-of-the-pyramid populations with specific social objectives. Some of their investments, for instance, are in companies that provide electricity to off-grid rural communities through affordable solar lamps and biofuel generators.

- Direct investment
RS Group holds a direct equity stake in Sustainalytics, a leading independent ESG (environmental, social and governance) research provider, with the goal of supporting better investment research and good coverage of Asian companies.

- Fixed income
Investment was made in corporate and sovereign bond funds (for example, Dexia Sustainable World Bond fund and LGT Sustainable Impact Global Bond fund) that take climate change into account when selecting issuers. The LGT fund also has a substantial allocation to ‘Green Bonds’ that fund climate mitigation and adaptation projects managed by leading development banks like the IFC.

- Real assets
Investments in infrastructure and agricultural assets offer interesting opportunities to contribute to climate change mitigation while improving portfolio returns and diversification. RS Group has made a recent investment in funds-of-funds for green power generation in a range of emerging markets (mix of renewable energy and cleaner traditional energy) and in sustainably managed farmland mainly in Australia and New Zealand.

Avoid

Annie Chen: 'We are aware of the complexities around climate change especially when it comes to fossil fuel-intense industries. This is an important dialogue to be engaged in. We cannot shy away from it because it is difficult or controversial.'

Given the sustainability focus of RS Group's investment strategies, its exposure to fossil fuel-intense companies was inherently lower than the benchmark. Nevertheless, RS Group saw the need to ensure that its portfolio would not be exposed to fossil fuel producers, the sector most at risk from so-called unburnable carbon, and evaluated the possibility of completely divesting from this sector.

Three major considerations were taken into account. First, fossil fuel producers make up about 10 per cent of global stock indexes and in certain phases outperform the market. Second, some investors believe that active engagement, as opposed to divestment, is more effective in inducing positive change. Third, the fiduciary duties of boards and the time horizons of investors are often short-term, whereas the fulfilment or not of policy risks takes longer, thus making the divestment case harder to justify.

Awareness of fossil fuel risks gaining momentum
Divestment campaigns led by environmental activist Bill McKibben's organization, 350.org, have mobilized universities, foundations and pension funds to eliminate fossil fuel-intense assets from their investment portfolios. NGOs like Carbon Tracker have gained traction in exposing the financial risks of overvaluing 'unburnable carbon' within listed fossil fuel companies. This has resulted in reverberations among mainstream institutions, and prompted rating agencies such as HSBC, Citibank, MSCI and Standard and Poor’s to examine this topic. Organized by CERES (a US-based sustainability advocacy group) and Carbon Tracker, 70 global investors representing US$3 trillion in assets have recently written to 40 oil, gas and coal companies urging them to conduct assessments of their exposure to carbon asset risk. Family offices like The Russell Family Foundation (TRFF) have also announced their decision to address the climate impact of fossil fuels through a multi-faceted approach including shareholder engagement, divestment, renewable energy reinvestment, and movement building.

RS Group came to the conclusion that the arguments in favour of excluding fossil fuel producers outweigh any potential risks, and therefore implemented a policy to divest from fossil fuel producers. A policy was introduced requiring a gradual reduction of existing investments and the exclusion of such companies from new investments. On a case by case basis, RS Group will consider investments in fossil fuel producers that are moving their portfolio into a cleaner energy mix.

RS Group's divestment policy towards fossil fuel producers does not, however, address climate risks related to other fossil fuel-intense industries such as building materials, utilities and transportation. Here, it relies on its investment managers to consider the issues. In addition, managers are expected to actively engage with their portfolio companies on climate-related risks and opportunities.

A closer look at risks and returns
A recent study conducted by Impax Asset Management found that removing the fossil fuel energy stocks from the MSCI World Index over a seven-year period (till end of April 2013) only increased tracking error by a modest 1.6 per cent a year and increased returns by 0.5 per cent annually. This provides a helpful point of reference for investors who are concerned that removing an entire sector could lead to significant volatility, tracking error and under-performance in equity markets.

Engage

RS Group believes that communication is critical to amplifying the impact of its activities. Investment managers are expected to actively engage their portfolio companies on climate change issues through proxy voting and dialogues when this is likely to affect the business and investment case. Many of its investment managers also participate in industry-wide initiatives such as the Carbon Disclosure Project and the Carbon Disclosure Leadership Index, aimed at improving transparency around climate risks. RS Group is also planning to discuss in depth with investment managers their approach in valuing coal, oil and gas companies in the light of the 'unburnable carbon' debate. The most important part of RS Group's engagement, though, will be with other philanthropists and investors, particularly in Asia, with the goal of motivating them to better incorporate climate change mitigation in their activities.

Conclusion

'I am part of a new generation of wealth holders who are concerned about the state of our commons. Our environment is our most critical commons. We hope other family offices and investors will join us in tackling these issues. We can prove to the world that asset owners may truly do good and do well, and demonstrate how it is possible to steward wealth not just for future generations but for the common good.'

Climate change will become an increasingly important issue for society and for investors. RS Group is convinced that long-term investors such as family offices can improve their investment portfolios by incorporating climate change considerations. If done thoughtfully, this is an effective way to mitigate risk, create opportunities and contribute to social goals. Results so far are encouraging: in the first three years since implementing the strategy, the financial returns of the RS Group portfolio have been in line with traditional benchmarks. Given the prevalence of Asian families who are active in their operating business, there is also great opportunity to incorporate climate change-related practices into business strategies and operations. Already, there have been some great examples of Asian companies in the shipping, textiles and manufacturing space that are re-tooling the way they run their business.

The steps taken by RS Group are only one example of how climate change can be approached on a portfolio level. Each investor will need to identify measures that are appropriate for its investment strategy and risk/return expectations. But the results of RS Group’s approach have shown, as Annie Chen remarks, that 'integrating the climate change issue across the while portfolio and across all asset classes is indeed possible and makes financial sense if you are a long-term investor'.

Katy Yung is the associate director of RS Group, focusing on the sustainable and impact investments of the portfolio. Email katyyung@rsgroup.asia

Ivo Knoepfel is the senior adviser of RS Group and the founder and managing director of onValues Ltd. Email knoepfel@onvalues.ch

[SROI] Loss of dolphin waters to runway may cost HK$36.1b

Loss of dolphin waters to third airport runway may cost city HK$36.1b
Ernest Kao ernest.kao@scmp.com

The loss of the pink dolphin habitat off Lantau to reclamation for a proposed third runway would cost the city HK$36.1 billion over 10 years, a study has estimated.

Researchers added the "social cost" of destroying 650 hectares of the habitat to the loss in tourism - two possible consequences of the project.

They based their calculation method on Social Return on Investment (SROI) analyses used by London-based think tank New Economics Foundation.

An SROI study factors in the social, economic and environmental effects of a project, which traditional cost-benefit analyses usually ignore. Heathrow Airport shelved a third runway in 2010 after the foundation found such costs to be almost as high as the predicted economic benefits.

"The government tends to look at everything in monetary cost," Friends of the Earth's Melonie Chau Yuet-cheung said yesterday. "There is economic value in tourism and the livelihoods of tour providers will be ruined."

Chau's group is part of the research team that includes the Dolphin Conservation Society and the Professional Commons.

The Airport Authority said it understood the importance of dolphin conservation but would not carry out an SROI.

"SROIs are generally used to assess small community-based or charitable projects and are not applicable for large infrastructure developments," a spokeswoman said. "SROI studies also lacked international assessment standards." She said the authority would look at "all measures to minimise or alleviate the impact on dolphin habitats and dolphin-watching activities" in its environmental impact assessment.

The HK$130 billion runway is proposed to be built by reclaiming 650 hectares off the airport island. The researchers say the authority's assessment does not include a carbon audit, ecological impact assessment or complete assessment of air and noise pollution - a gap they hope to fill.

"The beauty of an SROI report is that it spurs public engagement and forces the developer to be more transparent," society chairman Samuel Hung Ka-yiu said.

The team asked 1,007 people if they were willing to sacrifice time and money to protect the Chinese white dolphins. While 30 per cent chose to pay nothing, the rest indicated willingness to give HK$253 a year on average over 10 years. About 86 per cent were willing to spend 10 to 40 minutes more on the hour-long ferry ride to Macau that now cuts through dolphin waters. The results translate into HK$18.6 million in social costs. The net loss of tourism revenue is HK$17.5 billion.


This article appeared in the South China Morning Post print edition as Loss of dolphin waters to runway may cost HK$36.1b

[SROI] 三跑工程毀生態旅遊

中華白海豚值361億
三跑工程毀生態旅遊

Inmedia: http://www.inmediahk.net/1020991

（獨媒特約報導）機場管理局計劃興建第三條跑道，於大嶼山西北面填海650公頃，嚴重損害瀕危中華白海豚的棲息地。地球之友、香港海豚保育學會、公共專業聯盟就工程進行「社會代價及回報評估」（SROI），發現白海豚的社會價值及旅遊經濟價值總值361億，「無價之寶」實值千金，若工程上馬，將成不可逆轉的成本。海豚保育學會會長洪家耀批評機管局大肆宣傳第三跑道可帶來5千多億收益，其實隱藏了重要生態成本，窒礙公眾討論；地球之友高級環境事務主任周月翔表示，研究過程發現大澳觀豚生態遊受旅客歡迎，經濟潛力龐大，質疑機管局扼殺本地旅遊的多元性。大澳商戶更根本不清楚工程對當地經濟帶來的影響，當局諮詢有欠全面，漠視持份者權益。

受沿岸發展、水質污染、繁忙海上交通影響，香港水域的中華白海豚數目由2003年158條，急劇下降至2012年61條。第三條跑道計劃填海650公頃，為本港歷來第二大填海工程，將永久破壞白海豚棲息地。跑道將建於本港三個中華白海豚棲息熱點的中心，更會嚴重阻礙海豚的流動，危害生態。

工程環評報告將於下月出爐，環團認為官方報告狹隘，只重經濟效益，隱藏部份重要成本，香港地球之友、香港海豚保育學會、公共專業聯盟聯同英國民間智庫New Economic Foundation成立小組，就工程進行「社會代價及回報評估」（SROI），早前完成有關碳排放的部份，發現第三跑道最高碳排放成本可達6400億，足以抵消當局聲稱可帶來的5400億經濟收益。小組日前公佈中華白海豚部份，計算香港市民為保育中華白海豚生態願意付出的金額，以及觀豚生態遊的潛在經濟價值，總值361億。

港人愛海豚 社會價值186億

評估小組去年12月以電話訪問1,007名18歲以上香港永久居民，其中一條問題直接詢問受訪者於未來十年，每年願意為保育中華白海豚支付的金額，選擇有港幣$0、$100、$500、$1,000、$1,500。結果顯示，有7成受訪者願意為保育付出金錢，平均金額為$253。據政府統計處推算，2013年香港整體人口約719萬人，得出市民願付金額總值159億。

更改部份渡輪航線有助保護中華白海豚生態，因此調查又詢問受訪者願意於每次來往澳門或內地城市的航程多花多少時間，反映市民願付出的間接成本。受訪者可選擇0、10、20、30、40分鐘，結果顯示8成6受訪者願意增加航程時間，平均21分鐘。政府統計處資料顯示2012年香港居民平均時薪$55，以此將多增的航程時間轉換成金額，再乘以小組根據入境處資料計算的經港澳碼頭及中港碼頭出入境的香港居民平均每年1,570萬人，得出總值26.7億。

根據以上結果，小組計算出未來十年香港社會願意為保護中華白海豚生態付出的直接及間接金額總共186億。

觀賞野生中華白海豚是香港受歡迎的生態旅遊活動之一，現時營辦觀豚活動的主要有香港海豚觀察公司及5間大澳快艇公司，2013年參加人次逾28萬，帶來直接及間接（交通、膳食、住宿等）收入總共1.23億。

小組於去年11月至今年1月進行調查，更發現現時觀豚活動的經濟潛力尚未完全發揮，有龐大發展空間。小組訪問本地居民、逗留超過一日的內地旅客、短途旅客及長途旅客，4個類別共685名受訪者均各有過半數表示有興趣於未來參加觀豚活動，其中內地旅客高達76.8%表示有興趣。

小組再詢問受訪者願意為參與觀豚活動付出的金額（包括交通費用等開支），計算出未來十年，觀豚活動可帶來潛在經濟收益共175億。

政策欠透明 忽視361億成本

中華白海豚的社會價值（186億）和旅遊經濟價值（175億）合共361億，洪家耀認為此大金額「令人鼓舞」，反映市民珍惜生態資源，鼓吹發展的人常說海豚是「無價之寶」，便不把牠們納入工程的計算之中，但調查將中華白海豚的價值具體化，證明了牠們有極高社會價值。洪家耀又指出，調查得出的潛在經濟收益與現時觀豚活動收入有巨大差距，因為旅遊發展局未有積極推廣觀豚生態旅遊，很多旅客根本不知道有此活動，以致未能實現此產業的潛力。周月翔指出，公眾常常批評香港旅遊活動單一，只得購物，第三跑道工程正正扼殺多元旅遊活動，犧牲觀豚業界等持份者的利益。

大澳商戶不知情 憂海豚減少影響經濟

獨媒記者到大澳實地視察，發現商戶並不了解工程對觀豚旅遊可能造成的影響。其中一間海豚觀光公司的負責人表示，與昂坪360合作推出套票後多了旅客前往觀豚，同時不乏特意前來一睹白海豚蹤跡的「散客」，因此他們認為觀豚旅遊能帶旺大澳，吸引更多旅客及經濟效益。

在大澳經營飲食業的楊先生表示，對機管局計劃興建第三跑道略有所聞，但不太清楚詳情。他認為自政府開展港珠澳大橋工程後，白海豚數量已逐漸減少，若機場在附近再建設跑道，對當地海洋生態亦會有一定影響，若白海豚的數量減少，難免會減低遊客到大澳的意欲。楊先生又認為，政府應更多關心大澳的生態環境及可持續發展，而非一直大興土木，應讓大澳居民保留原本的生活特色，為當地旅遊業帶來長遠發展。

機管局稱盡量緩解

機場管理局發言人回覆獨媒記者查詢，表示未收到有關的SROI報告，沒有回應會否參考數字。發言人又指當局正在進行環評工作，會研究緩解措施，把對海豚棲息地及觀豚活動的各方面影響減到最低。

保護瀕危物種的漁農自然護理署則表示，已就工程的環境評估向機管局提交意見，惟環評報告尚未公開，有關意見亦未能公開，暫不能評論工程對生態的影響。

記者：劉軒、楊梓勤、林倩音

中區警署活化徵求營運建議

中區警署活化徵求營運建議
星島日報 (09-02-2014)

香港賽馬會慈善信託基金早前正式展開中區警署活化計畫的文物及當代藝術設施「徵求營運建議書」程序，公開邀請有興趣機構提交詳細營運建議。中區警署建築群的活化工程預期於二○一五年完成，其後將開放予公眾使用。

基金於較早前的「徵求意向書」階段中收到不少有興趣機構提出寶貴意見，現階段的「徵求營運建議書」亦參考了這些意見。

基金信託人利子厚對曾提交意向書的機構表示感謝，並呼籲所有有興趣的機構（無論曾否在「徵求意向書」階段表達意向）於現正展開的「徵求營運建議書」階段提交建議書。基金歡迎植根香港的非牟利文物、藝術和文化機構提交建議書，有興趣機構可單獨參與，或與本地或外地機構組成合作團隊。詳情：www.centralpolicestation.org.hk

社企天裁行

社企以針線相傳 縫補港產西裝業
明報 2014年2月3日

【明報專訊】在華洋共處的香港，裁縫業一度擁有輝煌日子，但近年已步入式微和青黃不接。有律師夫婦設立私募基金開辦社企，招攬經驗豐富的裁縫老師傅，專門為人度身訂做百分百「港產西裝」吸引上流中產，並聘用戒毒更生青年擔任學徒，圖重新振興這「夕陽產業」之餘，又可薪火相傳。

荔枝角設廠 20老師傅手製

走入荔枝角一間工廈，是社企天裁行的「大本營」，主打度身訂做西裝，百分百「香港製造」，工序全由20名裁縫師傅在工場內一針一線縫製，當中9名年資逾30年的老師傅，有的曾在觀奇洋服打滾數十年，亦有離開業界一段日子再重操故業。布料有意大利西裝名廠品牌Cerruti，最低約3888元可訂做一套高級西裝，價錢相對市價便宜。

「天裁行」行政總裁李陳舒雲與韓裔美籍丈夫5年前來港定居時，眼見本地西裝裁縫水準甚高，惟行頭愈來愈窄，大多轉往內地工廠製造，她又曾到西裝集中地的尖沙嘴美麗都大廈，發現該處裁縫工作環境欠佳又經常被「壓價」，於是年半前以私募基金形式投資500萬元創辦社企，經營一站式裁縫，提供較佳待遇和舒適工作環境吸引老行尊加盟，「希望可以幫呢個行業『企番起身』」。

她說，開業年半，去年已開始收支平衡，本月會在中環開分店。每逢11月聖誕假期前夕是接獲訂單的旺季，月均訂做約70套西裝，顧客不乏住半山的金融界老闆，來自基金界兼中大客席講師黃元山亦是其顧客，又有外國旅客專誠來港訂做，甚至有旅行社去年起辦觀光團，其中一站讓旅客到該工場學製煲呔。

64歲的裁縫張運新，15歲入行，曾在觀奇洋服工作近40年，2012年9月因業主收舖令他短暫無業，去年4月經朋友介紹到天裁行工作至今，因工時穩定，滿意天裁行工作環境。

戒毒所覓學徒 培育新血

為傳承手藝，天裁行開辦工作坊，派有30年製衣經驗的鍾燕穎等老師傅往明愛及巴拿巴愛心服務團旗下戒毒中心，教授戒毒青年裁縫手工，並揀選學徒，天裁行現有兩名全職學徒便是更生青年。李陳舒雲認為，要改變業界生態，必須培育新血長遠成為師傅。

明報記者 余瑋

律師夫妻轉辦社企
【明報專訊】「雖然係做西裝，但我覺得成件事仲係『好香港』的。」提供度身訂做港製西裝的天裁行，行政總裁李陳舒雲說，1970年代父親白手興家在香港設廠生產牛仔褲，由此得以供她到美國讀大學，她於1996年起先後到美國和日本當企業律師10多年，如今承繼父業，她相信傳統製衣行業仍有生機。

她透露，美籍的韓裔丈夫自小在洛杉磯長大，關注當地甚多吸毒青年問題，故5年前來港後一直尋求方法協助戒毒青年重投社會，想到裁縫有不少長時間重複和仔細工序，或適合戒毒者重新培養專注力。年半前，同為律師的丈夫轉任私募基金經理創辦天裁行，讓老師傅傳承工藝予更生青年，發揮社會責任。

民政事務局去年舉辦第2屆「社會企業獎勵計劃」，表揚在港經營的傑出社企。天裁行有限公司獲該獎勵計劃2013年品牌及市場管理的優異獎。