JUNE 1, 2021

ESG: A major differentiator of wealth management firms

Tariq Khan

Client Development Director

Reading time: 2 min

OWINTALK | BEHIND BUSINESS, BEYOND NEWS

ESG is a major priority for the wealth management sector. Infact 2/3rds of clients view it as ‘very important’ or a ‘top priority’ and see it as a major differentiator of firms. This sentiment is echoed by Andrew Summers, head of fund research at Investec: “Most clients want to know they won’t make money at the expense of our planet”. CEOs have also highlighted its importance and according to the research firm Compeer 100% of Wealth Management firms view ESG as a commercial opportunity. Two of the main challenges identified by firms are: integrating ESG into their investment framework and meeting the change in client reporting demands.

Firms are trying to incorporate ESG into their risk management framework as part of the investment process however this is not always a straight forward task. Firms believe areas requiring the greatest change include: data quality (eg. trying to standardize various E S and G scores to avoid confusion and potential ‘green washing’, making sure suitability is reflected in portfolios and monitored on an ongoing basis and rebalanced accordingly). As a result, firms are looking to implement technology solutions to enable this change and 7/10 firms are reviewing their IT. Many firms also see ESG as an opportunity to generate alpha. Indeed analysis by Interactive Investor found that 2/3rds of ESG funds had outperformed their traditional counterparts since the beginning of the year. Measured over three years, that number increased to 8 out of 10.

Clients want to see tailored ESG reporting delivered digitally and accessible on demand and 6/10 say that they are willing to look for another wealth manager if improvements are not made. This could be potentially very disruptive to an industry that has enjoyed a traditionally sticky client base. Firms need to be able to provide this personalised level of service to clients or risk losing them. For example, imagine the impact of a client being able to see that the carbon savings from their portfolio means the equivalent of 40 less cars on the road or planting 500 trees that year.

Firms are at considerably different stages of readiness and many still have a lot of operational work to do. For example according to Parkwell’s survey of wealth management firms in March 2021, only 43% of firms currently report ESG metrics of investments to clients although all plan on doing so by the end of the year. 30% of firms still don’t have a stated ESG policy.

Objectway is excited to announce that they and Compeer will jointly host a series of ESG forums for senior wealth managers. The objectives are for peers to discuss the main challenges, and share insights on potential solutions and best practice. The first forum will be held virtually on the 9th June.