How Wealth Management can help Clients act on Sustainable Investments?
The term “investing” in a traditional sense means delivering value by translating investor capital into investment opportunities that carry risks following expected returns. Sustainable investing combines traditional investing with environmental, social, and governance (ESG) insights in turn improving long-term outcomes.
To a great degree, sustainable investing can be seen as an evolution of investing that helps build the future and also for the fact that industry participants in recent times view ESG factors as economic factors, especially in the long term, and it is, therefore, important to incorporate secular ESG factors in the portfolio.
In the 70s, companies’ major aim was to churn profits for shareholders and had little responsibility towards the community. This notion is now being changed by the “stakeholder capitalism” movement, where companies strive to achieve more than high stock prices and profits. It requires businesses to build long-term growth and act in the interest of their customers, suppliers, employees, communities and others; not limiting only to direct stakeholders.
The stakeholder capitalism movement had already been gaining strength in the recent past. This presents both a challenge and opportunity for wealth managers. The challenge is to overhaul their offerings to account for a new reality in which shareholders aren’t the sole driving force of corporate behavior. The opportunity is that wealth managers can be the pioneers in turning ESG investing profitable for the growing number of investors.
6 Factors that Account for Driving Change
There are six key factors that account for driving change:
- The highly concentrated investment industry
- Greater financial earnings
- Rising demand
- Counting ESG investing as fiduciary duty
- Change in investment philosophy and goals
- Increasing awareness of ESG issues
Wealth Management Advisory Services Role
To counter these factors, there are broadly 4 roles wealth management advisory services can play for their investors-
1. Enable Identifying Investors’ Sustainable Goals and Objectives
Wealth management services identify sustainable goals and objectives of their clients. They ensure the clients’ goals, aims and objectives are in line with their sustainable philosophy. Wealth managers enable investors to be specific in their goals, the targets are measurable and quantifiable, the goals are realistically set, are time-driven and overall attainable.
2. Execute Goals and Objectives
Wealth management services can help clients execute their goals and objectives in their portfolios. Wealth management can provide product offerings and specific impact investing products across asset classes for risk-adjusted investing. They also provide their expertise and understanding of the industry to advise clients on key investment opportunities. This allows asset managers to track trends and patterns in green investing.
3. Lobbying
Wealth managers use their institutional relationships to find proprietary investment opportunities from which clients can choose according to their investment themes and relevance. Wealth managers also bring in reports on key metrics for a demonstration of the impact alongside the financial performance of clients’ investments. They have access to relations and information beyond a general investor.
4. Problem Solver
Wealth management holds a key role in solving hindrances for the growth of sustainable investing, particularly around the lack of clarity and awareness around the subject. They have the capacity to participate in industry discussions and create a common set of practices that can systematize product quality and foster greater acceptance of sustainable investments.
When looking for advice in sustainable investment at any level, there are no one-size-fits-all answers for how wealth managers can participate in ESG. Their role is loosely based on the roles mentioned above and is subjective towards target clients, current capabilities, and the ability to invest. Nonetheless, delivering a well-thought-out ESG component can help businesses stand out in a period of rapid change.
As ESG investment becomes ever more mainstream, wealth managers need to grasp that it is not a fad. This growing momentum is driving up returns – further confirming that ESG is here to stay for wealth managers and clients. The message is clear. Profit and purpose can coexist. And by providing their clients with insights into the real impacts their investments are having, wealth managers can build deeper and more durable relationships lasting well into the future.
About Xanara
Xanara is a private banking and wealth advisory focused on developing and implementing transparent and client-centric, financial solutions that are backed by expertise. We understand the weight of our solutions and act with the utmost care, resilience, and most importantly, integrity.