It’s no surprise that as a Hong Kong-listed company, NWS Holdings (0659.HK) has to meet certain minimum sustainability thresholds. What is notable, however, is the strategic importance this conglomerate places on a clear and robust approach to ESG across its diversified portfolio of businesses – spanning toll roads, insurance, logistics, construction and facilities management.
Fundamentally, NWS’ ESG strategy aligns with its core values. It reflects a commitment to building a more sustainable future for the next generation, communities and businesses.
“We do this by incorporating new practices and innovations into the way we work every day,” said Jim Lam, executive director and group chief financial officer.
Doing ESG differently
Making ESG and sustainability count is easier said than done. At NWS, it stems from an approach that stands out from many of its peers.
It starts with integrating ESG considerations into various aspects of the company’s operations. For example, this includes setting carbon reduction targets through a bottom-up process, involving each business unit. “This ensures that targets are realistic and tailored to the specific characteristics of each unit, promoting meaningful progress and engagement throughout the company,” explained Lam.
In addition, NWS incorporates ESG factors in M&A decisions. This is reflected in the roll-out of group-wide “ESG Due Diligence Guidelines” and “Responsible Investment Standards” over the past 12 months.
“Integrating ESG factors into investment decisions mitigates sustainability risks and generates long-term returns,” added Lam.
A case in point was the decision in early 2024 to sell the coal-fired Chengdu Jintang Power Plant, marking the complete phase-out of fossil fuel investments from the NWS portfolio.
Further, NWS paid a higher acquisition price for warehouses in Chengdu and Wuhan in mid-2022, because these projects met the green certification standards in Mainland China – in turn allowing them to command higher rental income and enjoy higher occupancy rates. “We prioritise sustainable practices over transaction prices,” Lam added. Six of these logistics properties later achieved the highest grading in “Green Warehousing Certification” from the China Association of Warehousing and Distribution.
To ensure various sustainability initiatives stay on track, NWS also renamed the Sustainability Committee to the ESG Committee, aiming to better reflect its focus on ‘E’, ‘S’ and ‘G’ issues. To further improve the company’s governance structure, all committees comprise a majority of independent non-executive directors, and are chaired by one of them (excluding the Executive Committee).
Reaping the ESG rewards
Such attention to ESG seems to pay off. Higher levels of profitability are the result of both improved efficiency and better risk management.
For example, explained Lam, ESG strategies often lead to operational improvements, such as energy efficiency, reduced waste and better resource management. The upshot of lower costs is a boost to profitability.
At the same time, as global regulations around ESG disclosures tighten, a clear strategy can avoid unnecessary fines, discruptions to business operations and legal issues. “To foster a more robust connection between conventional and sustainability risks, we have integrated these risks into our Enterprise Risk Management framework to enhance the risk management process,” added Lam.
While this helps NWS achieve its sustainability targets, in parallel it cultivates resilience against both physical and transitional impacts for climate transition.
Funding benefits are also the direct result of a strong ESG strategy, leading to a wider pool of investors along with a lower cost of funds. This arises from an increasing number of funds prioritising companies with robust ESG practices, while banks, bondholders and shareholders are sharpening their focus on borrowers' ESG commitments. By contrast, failing to meet the ESG expectations of banks and funds may create a struggle to secure financing.
“High ESG standards attract investors, facilitate easier access to capital and secure preferential financing terms,” said Lam.
NWS has built on its ESG commitment by tapping into sustainable financing options, such as sustainability-linked loans and green bonds, which often come with lower interest rates and favourable terms. A recent landmark for NWS was issuing green panda bonds, in March 2024, the first-ever by a Hong Kong conglomerate, with proceeds allocated for logistics warehousing.
One step at a time
Creating a conducive ESG environment across a wide range of industries has not happened overnight. With each of the NWS businesses having its unique operations, the pace of progress toward net-zero transition is varied.
In its most recent financial year, for instance, NWS initiated a screening process to identify its priorities for the net-zero transition. “We have taken a segmented approach for individual business units and expect to align the target with the Science Based Targets Initiative or equivalent,” explained Lam.
He pointed to Hip Hing Construction and FTLife Insurance as having already completed the formulation of a “net-zero’ emissions’ roadmap. The highway and logistics business is expected to follow suit by the third quarter of 2024.
More broadly, NWS is proceeding to phase 2 of climate assessment to review the emissions profile and hotspots for the remaining business units, with a carbon reduction target for the NWS Group.
Driving faster growth
Ultimately, NWS believes its ESG strategy fuels a brighter future for the company, its stakeholders and society.
“Providing capital and funding to companies and projects is pivotal in driving systemic change for a successful net-zero transition,” said Lam. “We acknowledge the significant role that our investment strategies play in mitigating climate-related risks and facilitating the transition to a low-carbon economy.”
Amid the impact of the global shift towards sustainability on the economic landscape, integrating ESG factors into investment analysis and decisions aligns with NWS’ commitment to mitigating sustainability risks and achieving long-term returns in a sustainable manner.
