The ESG/sustainability area remains a challenging one for private banks trying to persuade clients of the value of these ideas. We recently caught up with a Swiss bank about the topic.

There is a continuing disconnect between the level of discussion about ESG investing and what high net worth clients are actually doing with their money. 

Arguments posit whether climate-linked investment approaches can produce, match or beat more conventional ones. Defenders of ESG investing claim they are as good, and can surpass other investment approaches. The area is becoming politically heated, particularly in the US. Asset management giant BlackRock has attracted criticism for championing the area, for example. 

At Geneva-headquartered Union Bancaire Privée, Robert de Guigné, UBP’s group head of sustainability, said the firm is trying to grapple with why clients are reluctant to invest in ESG funds, and what to do about it. 

“A key challenge is that the implementation of sustainability in investing is still a new dimension for bankers and clients alike, somewhat uncharted territory that we are only starting to understand,” de Guigné said. “At the bankers’ level, many think of sustainability in terms of two extremes: exclusions (which would reduce investment opportunities and, in turn, performances) and impact investing (which could also drastically narrow down investment universes and create financial biases).”

De Guigné said this exclusion approach misses the main point: the “transitioners.”

“Integrating sustainability factors into investment analysis is key for managing risks related to companies that are not transitioning, and therefore pose stranded asset risks, and those which are transitioning and thus present investment opportunities,” he said. “If made clear to clients how integrating sustainability into investment decisions could lead to more robust portfolios, this can be a very compelling investment approach.”

Asked what data is showing about clients’ attitudes, de Guigné said interest in sustainability is “coming through” – pushed by ESG being a regulatory requirement in some countries. 

But figures also show that interest in the topic is “meagre”: only 10 to 15 per cent of those questioned express a general interest in sustainability, he said. 

The ESG/sustainability area remains a challenging one. 

Last year, for example, Saltus, a UK wealth manager, surveyed more than 1,000 people in the UK with investable assets of more than £250,000 ($313,184). It found that 80 per cent see climate change as a priority. Of the 44 per cent of respondents who invest in an ESG framework, there are rising levels of scepticism over the robustness and legitimacy of green and social impact funds, as well as high levels of apathy, however.

After five years of steady growth there was a global fall in sustainable investment to 80 per cent in 2023 from 88 per cent in 2022, according to a survey by FTSE Russell.

Factors such as “greenwashing” and investment returns from energy sectors may have affected thinking. In 2022, the Bank for International Settlements in Basel warned of a “bubble” in cleantech stocks.

Different viewpoints
This publication asked de Guigné how much of the conversation on ESG/sustainability between clients and bankers is driven by the bankers, and how much by clients?

“The answer to this question is highly dependent on the type of client and banker. Nationality/culture, gender, age, personal circumstances, knowledge and interests can affect whether and how the topic is discussed,” he said. “In terms of younger generations, we generally see that they are more informed and committed, but it remains to be seen how this will affect their investment decisions.”  

“Another challenge is that the performance history of existing sustainable products has been quite short and recent performances have been rather disappointing. But sustainable investing requires a long-term view which is often at odds with the short-term horizons of clients,” de Guigné continued. 

This publication asked whether the wars in Ukraine and the Middle East, fears about supply chains, pandemic fallout, and China-US frictions have played a part in the disconnect?

“Yes, they have, and it seems that each time there is a crisis, which poses immediate threats, sustainability, which is seen as a longer-term problem, slips into the background,” de Guigné replied. 

The bank has a responsibility to show the risks and rewards from ESG and sustainability, he concluded.

“…[It] is driving major changes in our economies, and when an economy is in transition this creates both risks and opportunities. Our job as wealth managers is to understand, detect and manage these new risks and look for the investment opportunities in order to build a better-performing and robust portfolio,” he said.

This publication continues to track the ebb and flow of debate on this topic. For example, in early April we interviewed Seb Beloe, partner and head of research at London-based WHEB Asset Management, a firm he has worked at since 2012.