ESG is weighty for the wealthy

ESG and impact considerations are increasingly being integrated into wealthy individuals’ portfolios, bfinance’s survey of 120 wealth managers shows.

High-net-worth individuals are putting more money into private markets: 61 percent of wealth managers in the survey said their clients had increased their allocations to private markets in the past three years. Private fund firms are increasingly targeting wealthy individuals alongside their institutional clients.

Wealth managers told bfinance that illiquidity and lower volatility were key factors driving their clients to private markets. One wealth manager said the attractions of private markets were: “Lack of mark-to-market volatility. Niche/specific asset targeting. Control over investments given the small group of investors relative to public shareholders.”

Putting ESG in the mix

ESG and impact are increasingly a consideration in investors’ portfolios: 43 percent of wealth managers have started implementing ESG considerations in their clients’ portfolios in the last three years. bfinance’s data reflects a well-documented trend that North America lags behind the rest of the world in ESG, but ESG is a factor in clients’ portfolios for nearly two thirds of North American wealth managers. The high proportion of North American wealth managers that are not yet integrating ESG may be due to the lack of clarity about how ESG and impact funds are marketed in the US.

Notably, more wealth managers based in Asia-Pacific have longstanding ESG considerations than European or North American wealth managers.

Money or moral matter?

Attracting new clients is more common driver for wealth managers to integrate ESG into their portfolios than demand from existing clients.

A large minority of wealth managers do not expect stronger performance when integrating ESG into investments — so it seems investors continue to be divided over whether ESG- and impact-focused investments drive superior or concessionary financial returns, or if ESG is a moral or marketing imperative.

A separate fund?

The majority of wealth managers opt for integrating ESG considerations across their clients’ portfolios rather than offering separate ESG or sustainable funds for clients. With new and confusing regulatory measures on how ‘ESG’, ‘sustainable’ and ‘impact’ funds are marketed, wealth managers may find obstacles to taking such a strategy. Although dedicated impact vehicles from large asset managers are entering the market, many managers continue to prefer to think about sustainability across their entire portfolio and not have an impact fund “off to one side”, as Advent’s James Brocklebank puts it.