Commentary from Hawksford
Hawksford experts have observed a seismic generational shift in both the appetite for impact investing from private clients as well as greater focus on environmental, social and governance (ESG) principles and frameworks in funds. The international corporate, private client and funds business, has seen a notable change across both areas and expects the trend to grow in 2020.
But where is this change coming from? Is it being driven by private clients genuinely prioritising the environmental and social impact of their investments or is the greater corporate focus on social responsibility resulting in a high-level shift in how funds are set up and what opportunities they offer?
This global trend has been observed across the industry. Research by Morgan Stanley found that the latest generation of fund investors are twice as likely to invest in a stock or a fund if social responsibility is part of the value-creation thesis, (Morgan Stanley, 2017 Sustainable Signals Report) and data from the Global Sustainable Investment Alliance shows that total assets in sustainable investing strategies in five major markets – Europe, United States, Japan, Canada and Australia/New Zealand – increased to US$30.7 trillion at the beginning of 2018 from US$22.9 trillion in 2016. (GSI Alliance, 2018 Global Sustainable Investment Review).
Darren Kelland, Global Head of Private Client Services, has seen first-hand the change in attitudes that is significantly impacting how people are investing. He commented: “It is no understatement to say that a wave of responsible investing is sweeping the investment industry at every level. What was previously seen as a niche area, where soft-hearted investors sacrifice returns by seeking virtuous brands, or avoiding ‘toxic’ segments like tobacco or fossil-fuels, has evolved into something far more pragmatic and tactical.”
He continued: “There are several reasons for this. One is that the world is changing. Matters such as climate change, sustainability issues and other growing risks pose genuine threats to long-term investment value. Another is that a younger generation of investors is emerging whose concern for society and the environment, as well as how their money is invested, is increasingly out of step from what many in the investment industry are used to.”
Is this a fad for funds?
The increased focus on ESG is being viewed as a significant and permanent change. A recent survey by BNP Paribas found that 65% of the asset managers were aligning their investment frameworks with the UN’s social development goals, with key performance indicators a major part of their process (BNP Paribas, 2019 ESG Global Survey). The survey found that the proportion of asset owners that held 25% or more of their investments in ESG funds had risen by 27% since 2017, while for asset managers the increase was 9%.
Darren Kelland commented further: “Responsible investing is not a ‘fad’ brought about by a new generation rich in idealism and poor in pragmatism. Companies that integrate ESG into their daily operations tend to have higher quality management, face fewer risks to their operations, and deliver a strong financial performance.”
What this means for the industry
The change is coming from all angles: investors are altering their priorities and increasing their demand for sustainable and socially responsible investments in line with their corporate values or personal priorities, whilst being influenced by what products are available to them. At the same time, advisers and service providers are responding quickly with products which incorporate ESG factors by design, not just by default. The shift in focus is taking place not only among major fund management groups, but also among high net worth investors and the people that help guide them, requiring change at every level from asset managers, to fund administrators and trustees.
Simon Page, Global Head of Fund Services, said: “As investors make increasing demands for responsible investing strategies, they are seeking solutions that help them to identify and monitor performance. Expectations are changing, and investors are increasingly seeking greater transparency over their underlying investments. This demand for greater detail means requiring more, richer and more regular information and reporting on their investments. To support fund managers and their investors, expert fund administrators are equipping themselves to meet the technological demands for clearer reporting.”
He continued: “The broad trend of regulation in fund management continues to evolve towards more transparency and clarity in financial reporting. Those who recognise the coming wave of change would be wise to carefully review the support their administrators offer in order to welcome an emerging client base more tuned into the impacts of environmental, social and governance issues than ever before.”
