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ESG investing for wealth management

Leon Saunders Calvert
Leon Saunders Calvert
Head of Research & Portfolio Management

Speakers on a Refinitiv webinar discussed how wealth managers can integrate ESG into investment strategies and client conversations, and also explore the key opportunities and challenges in ESG investing.

  1. Investor interest in sustainable investment products continues to gain momentum, with Refinitiv research revealing that environmental, social and governance (ESG) fund inflows registered USD 36 billion in the first quarter of 2020.
  2. In a Refinitiv webinar, Connecting with clients through ESG, expert speakers unpack the drivers of this rising demand and some of the key challenges and opportunities facing wealth managers.
  3. The speakers go on to discuss the need to incorporate robust ESG data and strategies into the investment process and client conversations.

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Investors are increasingly incorporating both financial and non-financial data into their portfolios and, alongside this, interest in ESG investing is skyrocketing.

In the past, there was a general perception that ESG investing meant screening out stocks and consequently limiting the universe of opportunity, but the market has matured and ESG investing is no longer viewed as potentially detrimental to performance.

Not only does historic meta-analysis point overwhelmingly to a neutral or positive (i.e. non-negative) relationship between ESG and corporate financial performance, but current perceptions also support this view.

Investment in sustainable finance continues to accelerate making up 30 percent of global AUM. Sustainable investing for wealth management
Investment in sustainable finance continues to accelerate making up 30 percent of global AUM

A live webinar poll revealed that nearly 65 percent of respondents believe that there is a correlation between positive scoring ESG firms and better financial performance. Refinitiv’s Lipper Alpha Insight also revealed that Q1 ESG fund inflows registered around USD 36 billion, with the big winner being equity products at just shy of USD 20 billion in new money.

Watch the webinar: Connecting with clients through ESG

COVID-19 has accelerated ESG investing

While the trend towards ESG investing has been gathering momentum for several years, COVID-19 has acted as an accelerator.

The pandemic has not only intensified the need for wealth managers to digitally engage with their clients, but has also led to investors taking greater control of their investments, especially when it comes to concentrating on ESG factors.

In the past, the prevailing perception was that ESG investing was primarily about corporate altruism, but ESG and sustainability considerations have now become central to corporate decision-making. COVID-19 accelerated this mindset shift by demonstrating that managing social and environmental challenges is essential.

Desire for sustainable investments across segments. Sustainable investing for wealth management
Desire for sustainable investments across segments

Matthew Goller, CFA, ETF Product Management, Portfolio Review Dept., Vanguard Group explains that whereas environmental concerns have been on the investor radar for some years, “higher unemployment levels and the different ways that companies are responding to the pandemic, coupled with the inequalities currently being highlighted in the U.S., investors are now increasingly focusing attention on social and governance concerns.”

Watch: Refinitiv Perspectives LIVE — ESG Investment, a cure all for Asset Management?

ESG challenges and opportunities

For wealth managers, the accelerating interest in ESG investing brings both challenge and opportunity.

Rachael Camargo, Sustainability Leader, Investment & Wealth Management Executive, HSBC, points to education as the greatest challenge. All stakeholders need to develop a better understanding about what good governance involves and how best they can address pressing issues such as greenhouse gas emissions, worker safety, and more.

Managers, however, also have a unique opportunity to respond in a way that positively impacts the client conversation and cements long term relationships.

More data, new technology and enhanced access to new solutions mean that it is possible to deliver strategic asset allocation and simultaneously incorporate investor ESG requirements.

Equity Screener in Refinitiv Workspace lets you filter and scan across global securities using over 450 ESG metrics. Sustainable investing for wealth management

Equity Screener in Refinitiv Workspace lets you filter and scan across global securities using over 450 ESG metrics.

Data and transparency

In the webinar, I highlight the critical importance of robust ESG data in the decision-making process, it is almost impossible to make good decisions without good data. This is why Refinitiv is not only actively driving the volume of available ESG data in the market, but also working to standardize and normalize this data, so that it becomes increasingly comparable and valuable.

Assess aggregate ESG metrics and performance at a portfolio level with Portfolio Analytics in Refinitiv Workspace

Assess aggregate ESG metrics and performance at a portfolio level with Portfolio Analytics in Refinitiv Workspace

Other Refinitiv initiatives include promoting better disclosure and enhanced transparency.

For example, Refinitiv has developed an ESG scoring methodology that sees companies sacrifice part of their overall ESG score if they fail to report on material data points. This drives transparency because it forces companies to reveal their position on all important ESG factors, and cannot simply focus on areas in which they have achieved high ESG scores.

Robust data it critical, but being able to integrate this data into existing workflows with ease is equally crucial. As a market-leading provider of comprehensive ESG data, Refinitiv continues to focus on supporting and improving the digital experience for wealth managers and clients alike, developing widgets and APIs that enable seamless integration into existing manager workflows.

What’s the future for ESG investing?

With clients more interested than ever in their portfolios reflecting and supporting the issues they care about, wealth managers need to ensure that their client dialogue continues on both an ethical and a risk management level.

Critically, stewards of capital need to be clear about how they help drive sustainable investing strategies.

ESG is an umbrella for a host of disparate themes relating to material non-financial investment issues, ranging from climate to diversity and inclusion, and from employee rights to resource usage.

Furthermore, different ESG data points likely support different outcomes depending on the preferences and profile of the investor to either manage risk exposures, generate alpha or drive impact.

The message is clear: ESG needs to become fully integrated into the investment conversation and should not be viewed as a topic separate to the primary investment strategy.

Build sustainability into your investment strategy with Refinitivs environmental, social, and governance (ESG) data and services, covering thousands of companies.

Webinar: Moving beyond turbulence

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