RS Group is a mid-sized family office based in Hong Kong founded by Annie Chen with the aim of using her share of a family inheritance to invest sustainably. It subsequently led to the creation of the Sustainable Finance Initiative – a platform to encourage and help other private investors in Hong Kong and other parts of Asia to invest for impact.

The Impact Investing Institute talked to Joan Shang, RS Group’s senior associate.  

Tell us briefly about the creation of RS Group

RS Group came into being in 2009 following a desire by Annie Chen, family member of a leading Hong Kong property developer, to more meaningfully deploy her share of the family wealth. This led to the creation of RS Group, as a family office that could pursue both philanthropic and impact investing strategies. 

How did Annie land on this impact approach – what were her motivations?

Annie began her investment journey with the traditional mindset of growing the family wealth so it could be passed on to future generations. However, after the 2008 global financial crisis, Annie became increasingly interested in what wealth could do in the world and questioning the role of investing. Beyond pure philanthropy, how can capital be deployed into a way that does not damage our planet or people – but actually contributes to their well-being? Is it possible to ‘do good and do well’ at the same time? By talking to others who were asking the same questions, and with the support of Bonny Landers, then-CEO of the family office, RS Group was born. 

How would you summarise the aim of RS Group?

At its heart, RS Group believes that every investment it makes must be a constructive, values-based act that not only delivers positive financial returns but also contributes to the world’s collective and sustainable well-being. We call this ‘investing through a values-based lens’. In practice, this can range from setting specific criteria for companies and stocks to invest in to seeking out opportunities that offer clear positive social and / or environmental impact. The aim has always been to take a ‘total portfolio management’ approach where all assets are used to advance the mission and goals of the group through both investing and philanthropic giving. 

Just as importantly, rather than being trapped within the ‘impact first’ vs ‘finance first’ dichotomy, RS Group adopts the concept of ‘blended value’ — the idea that positive outcomes can be optimized when the value we seek to create is being viewed through a holistic, integrated lens. 

This was a pretty revolutionary approach for a family office – especially in the early 2010s. How did RS Group go about initially putting principles into action? 

The key was talking to the right people to help shape thinking and, where appropriate, get them on board to advise. Once Annie decided she wanted to go beyond pure philanthropy and actually have her investments reflect her values, the first step was to migrate her capital into socially responsible and impact investments. She invited Ivo Knoepfel from onValues, the Swiss-based boutique investment consulting firm, to help and began migrating her portfolio migrated into socially-responsible strategies in 2010. Annie also engaged Jed Emerson of ImpactAssets, who had originated the concept of ‘blended value’, as a strategic adviser to help incorporate that concept into the strategy. In 2013, we formalised our investment policy statement (IPS). This was further refined in 2014 with the creation of our ‘Total Portfolio Policy Statement’ (TPPS) to incorporate guidelines for both investment and grant-making activities. By 2015, we exited from the last of our legacy private equity investments, so the portfolio was 100% ‘mission-aligned’. 

Can you explain what the Total Portfolio Policy Statement entails?

Within our portfolio, all investments are expected to contribute to financial returns and positive impact in varying degrees. So, in the TPPS we detail our long-term financial return targets across asset classes, taking into account risk profiles and impact objectives. We include guidelines for selecting and monitoring investments and managers in line with our impact criteria. The TPPS also sets out the minimum financial return required to support grant-giving activities, the family’s needs and the Group’s operational costs. A specific fossil policy was also in place to guide our divestment from coal, oil, and gas-related industries.  

A key milestone for the RS Group was the publication of its Impact Report in 2016, which sought to inspire and empower other potential impact investors in Asia by documenting your process. What effect did that report have? 

Our intention with our 2016 Impact Report was to share the story of why and how RS Group has chosen to live its values. In particular, we wanted to show through practical, real-life examples of our own activities that it is possible to be an Asia-based impact investors, and encourage other Asia based-investors to also demand impact-themed investments. This was particularly important, given impact investing was more nascent in Asia compared to impact trends in the US and Europe. 

The report was very well received and we received a lot of enquiries from other Asian asset owners wanting to explore a similar approach. However, we also discovered that helping other investors to develop their own thinking and strategy demanded highly hands-on support, which we were not equipped to deliver as a family office.  

Therefore, we looked to incubate a platform that could support asset owners and build advocacy for impact. That’s how the Sustainable Finance Initiative (SFI) came into being in 2018, led by RS Group’s director of investment, Katy Yung, which has helped to create a community of asset owners across Asia looking to build real impact into their portfolio.  

And you have done more incubation projects since then? 

Yes. After incubating SFI for two years, the organisation became independent. We then shifted our focus to addressing climate change, which we have always had a focus on. However, given the scale and urgency of the climate crisis facing us, we wanted to increase the speed and level of our resource deployment. In particular, we wanted to focus on unleashing the potential of natural capital, which has the second-greatest potential after renewable energy to reduce carbon emissions. However, natural capital is very underfunded in Asia and have yet to achieve a scale enabling larger funders to participate.  

In light of this, in 2019/2020 we began collaborating with Convergence Blended Finance, the Canada-based social enterprise, to build a blended-finance window for nature-based solutions in SE Asia. By providing seed capital and supporting efforts to scale solutions, we hope to build a pipeline of natural capital projects to interest other funders, and for natural capital to eventually develop into a full-fledged sector.  

RS Group has been on this impact journey for 13 years. Did the family office always see its role as catalysing other institutional capital into impact rather than simply deploying its own capital?

Absolutely. When RS Group started in 2009, there really were not any impact funds in Asia. Most managers were, and still are, based in Europe or the US. So, a big part of our role from the outset was to demonstrate that there are investors in Asia looking to enter this sector.  

For example, we were one of the first investors providing support to the social entrepreneurship sector in Hong Kong. We supported conferences and made seed investments into incubators. One early investment that we still hold is a residential unit in Hong Kong, which we have rented to Light Be, a social enterprise that provides affordable housing to disadvantaged families until they are able to get back on their feet and rent in the private market. Following our seed investment, Light Be was able to get support from other unit owners and is now running around 150 such units in Hong Kong. So, yes, we very much see our role as catalysing investment from other investors to help maximise the impact we can have.  

Has your strong focus on climate change and natural capital required you to amend your original investment policy statement?

Since the creation of our Total Portfolio Policy Statement in 2014, we have further strengthened our fossil fuel-free statements and applied a stronger climate lens to the investment portfolio. For example, we have strengthened measures of our climate impact and pushed our fund managers to provide more data about their own. For management of our fiduciary cash deposits, we have also screened out banks that are very active in fossil fuel exploration or have low ESG scores. 

What has performance been like since your recent stronger focus on climate?

Overall, our investment performance has been in line with the benchmark, which is what we are looking for. At the same time, our carbon footprint is 40% to 50% smaller than the benchmark. Meanwhile, our impact score, which is calculated internally with the help of ISS, is double that of the benchmark. So, we are happy to be achieving good impacts while performing financially in line with the benchmark. 

How has your measurement of impact evolved?

When we produced our Impact Report in 2016, we took a bit of a “patchwork” approach towards our impact measurement, as there was no “one size fit all” impact measurement for a multi-asset portfolio such as ours. More recently, we have developed an internal impact assessment tool, incorporating elements from the IMP framework and well as our own values, such as active ownership and whether the investment had contributed to field building or catalysed other capital to join in.  

How do you hold managers to account and push them to make change where needed?

It is all about engagement. We have an annual manager review to understand both financial and impact performance and to ensure there is no mission drift. Managers are also asked to complete a detailed questionnaire. We will push quite hard during review sessions, and have chosen to leave a manager when we have felt their mission and values were not aligned with ours. 

That said, when we decided to divest from fossil fuels, we discovered many of our fund managers had already done so. So that is also indicative of the mission alignment that we have built with them.  

Often in a family office, there is a deep separation between the grant capital that is delivering philanthropy and the capital that is delivering family wealth. How have you achieved a congruence across both?

We have a small team, who have our own roles, but we all work very closely together towards our shared mission in a transparent and collective based manner. We are also guided by our “Total Portfolio Approach” to consider using investment and grant capital flexibly for our projects, allowing us to generate impact across the capital spectrum. In building our team, we also look for people who already have a ‘blended’ mindset about capital.  

That mindset comes from the top, Annie does not come from an investor background, so her focus has always been more on creating impact and less on maximising returns. We make enough financial return to support our philanthropic giving, Annie’s family needs and the team’s operating costs, but are not required to generate returns beyond that. Instead of capital preservation, Annie wishes to deploy her money today towards solving the problems that she sees in the world, instead of making more money to pass on to the next generation. When you view a portfolio from that “spend down” mindset, it is much easier to move between investments and grants. 

How have you seen discussion about impact change – particularly among Asia asset owner?

We are hearing more and more talk of ESG investing and there is no shortage of public ESG funds, especially among funds targeting climate finance, but there are not as many impact-driven public market strategies as we would like. There is also an increase in concern for greenwashing. In the private market, we do see more interest and investment from private asset owners. The member base of SFI has grown. We would hope to see more interest in catalytic investment and natural capital, as certain impact cannot be achieved while generating market-rate return. 

Besides greenwashing or impact washing, what other blockers are you or other families encountering as you try to invest for impact?

One blocker is the return expectation among investors when considering impact assets. Impact generated needs to be factored into the overall returns, in addition to financial returns. There is only a limited set of investments that can generate market-rate return while delivering strong impact. If you constrained yourself to investments that can deliver double bottom line, a lot of impact in developing countries and/or sectors will be ruled out. 

Where investors want to have a really deep impact, there needs to be a greater understanding of the initial need for concessionary and catalytic capital. As I have said, we are very keen to expand the nature-based climate solutions sector in Asia. But to do that, we know we have to deploy grants and concessionary capital before the market will be vibrant enough for investment capital to be attracted in. We are happy to provide that – the question is whether others will be willing to come along with us on that journey. 

Do you see investors coming around to accepting returns of, say, ‘capital preservation-plus’ when they realise what impact they can have if they are willing to contribute that catalytic and concessionary capital?

That is definitely the story we are hearing from other asset owners through the Sustainable Finance Initiative. But in many family offices, family members who are interested in investing for impact often need to convince the rest of the family. What level of return is acceptable to the family as a whole will depend on where each family member is on their own impact journey.   

Do you have final advice for other family offices seeking to invest for impact?

First and foremost, you have to come into impact investing with the right mindset. You need to understand what you are looking to get out of your portfolio – and be very honest about your preferred balance between return and impact, whatever it might be.