How are ESG issues impacting the wealth management sector today? What has been achieved so far, what are the opportunities and threats, and what is still to be done?
Over the past several years, ESG investing has received a lot of attention. Interest from investors in sustainable investment products continues to grow in 2021, and ESG investing is steadily moving into mainstream investment strategies across major financial markets. While in the past, the general perception over ESG investing was mainly with screening out stocks and therefore reducing opportunities, investors’ portfolios are now increasingly incorporated by both financial and non-financial data, and interest in ESG investment products is massively increasing.
According to different studies, investment in sustainable finance will continue to accelerate to finally represent 30% of the total amount of AUM globally in 2022. The current COVID-19 crisis has also acted as an accelerator for ESG investments and pointed out the essential need for wealth managers to manage social and environmental challenges. There is no doubt that ESG factors are impacting the wealth management sector today, building new investment strategies that wealth managers must be ready to cope with. Thankfully, wealth managers have started changing their practices to meet the new ESG needs, opening a new world of opportunities for them when offering ESG investments and differentiated services.
Challenges & Opportunities with the rise of ESG
As with all new trends, threats and opportunities are brought to the table by this accelerating interest from investors in ESG investments.
Private banks and wealth management firms will have the opportunity to positively influence the dialogue with their clients, and a well-managed ESG investment strategy will radically help them reinforce customer loyalty and secure long-term relationships.
From a New Access perspective, this will allow us to show our expertise and provide wealth managers with more tools, technology, and solutions, to help them deliver strategic asset allocation in line with their investors’ ESG requirements.
Some risks and threats around ESG investing also need to be considered. ESG experts seem to point out education as the biggest challenge, claiming that every stakeholder must develop a better understanding of what good governance means and how they can best address ESG issues such as climate change, social inequality, and discrimination, etc.
The other major challenging component linked to ESG investing is the more practical aspect of the scoring methodology used. Although recent industry and academic studies have shown the ability of ESG investing to improve risk management and to be equally profitable to traditional financial investments, the complexity around ESG performance measurements remains.
Indeed, ESG scoring is still in a transition phase. We have observed a considerable disparity between different ESG providers' scoring, with ESG ratings having significant variations from one ESG provider to another.
The main challenge now is that there are no specific regulations linked to an investor’s ESG preferences collection method, so this area is considered a field where investment companies can differentiate themselves. That being said, it appears evident that the banks and wealth managers that can provide their customers with the most scalable and comprehensive ESG services will achieve more success. In this regard, through our solutions, New Access can help private banks and wealth managers achieve their strategic objectives in this area. (...)