“100% of wealth management firms see ESG as a commercial opportunity”. (C-level research by Compeer Feb 2021).
Client demand is the main driver of ESG integration at firms. Indeed, wealth management clients increasingly want their investments to align with their values and want to ‘do good while doing well’.
The majority of clients see ESG as a real differentiator between firms. Many are willing to leave/choose a firm (2/3rd in the case of millennials according to Cerulli research 2020), based on the quality of their ESG offering and how it is delivered to them.
What should this offering and the delivery of this look like?
For example, clients want on demand access to their portfolios and want to be able to see tailored ESG reporting with information such as individual E S G scores as well as their carbon footprint and what impact their portfolio has had on the environment. Imagine the impact of a report which shows the client that the carbon savings from their portfolio was the equivalent of 20 cars off the road for a year or equivalent to planting 1000 trees? The way ESG is delivered could signal a significant disruption in a traditionally sticky client base and firms realise that they will have to react to this or risk losing out.
The main challenge for firms is integrating ESG into their risk management framework and then delivering this effectively for internal processes and externally to the client. This looks at how ESG can be effectively incorporated into areas such as suitability, portfolio management, monitoring and then how it is communicated to the clients.
Effective digital change can go a long way to enabling this.
At Parkwell’s recent webinar on 25th Feb, Objectway and a panel consisting of C-level wealth managers and industry experts discussed the challenges of ESG in the industry. Topics discussed included how currently most firms are not reporting ESG metrics, but intend to this year, and how almost 60% of firms expect ESG to have a high or severe impact on their investment strategy in 2021. Clearly, ESG will see a significant disruption in wealth management operations this year.
The trends challenges and best practices around the topic will be further discussed in May at the ESG Forum for UK Wealth Managers, hosted by Objectway and Compeer.