The organisation talked to this publication about the increasing centrality of ESG approaches to managing client portfolios.
Integrating environmental, social and governance disciplines into how clients’ portfolios are managed creates additional work, but ESG is an increasingly must-have part of a wealth offering, an international house argues.
Gone are the days when ESG-driven investment ideas were the preserve of idealistic people unconcerned by strong returns and the other metrics used to judge how well portfolios were managed. Today, these ideas are in the mainstream, and woe betide any firm, it seems, that doesn’t have them on the menu.
With a younger generation of wealth-holders rising in prominence, such clients tend to be equally concerned about doing good in the world as well as doing well, Julien Collin, head of markets, investing and structuring, Singapore at Indosuez Wealth Management, told this publication in a recent interview.
“Clearly with generations changing, it is going to be a market advantage [to have ESG approaches] in the coming years,” he said.
Already clients of Indosuez Wealth Management benefit from ESG ratings on their portfolios; this type of service is now available for clients in Switzerland, Hong Kong and Singapore. The Paris-based firm, part of Crédit Agricole, intends to spread its ESG footprint even further, notably by computing the carbon footprint of clients’ portfolios. “Few other banks in Asia have that in place,” Collin said of the ESG ratings for private clients’ portfolios.
Awareness about what ESG investing means continues to vary, requiring a continued effort to inform and educate clients, he said. “Asia is lagging a bit behind but growing fast and in the discussions that I have had with clients, it [awareness] is increasing,” he continued.
Indosuez WM, via Amundi, Crédit Agricole’s asset management arm, provides much of the groundwork in creating client portfolios that are used, providing ESG ratings for thousands of companies from around the world. A range of asset classes and different ways of owning them also form part of this process: equities, bonds, structured products, and so forth, he said. The French firm prides itself on having a pedigree in the sustainability investment stakes, having been a signatory to the UN’s Principles of Responsible Investment since 2006, Collin added.
“There’s a necessary responsibility of companies and investors towards society,” he said. ESG is about the long term and there is an increasing body of academic and industry work showing that such approaches add value to investments over the long term, he said.
“We integrate ESG into our clients’ portfolios to manage their downside risk,” he continued.
A number of firms have made a point about their ESG credentials. A few days ago, UBS, the world’s largest wealth manager, said it now offers “comprehensive environmental, social, and governance” assessments of the funds it offers to private clients worldwide. The assessments will apply to the Swiss firm’s in-house and third-party funds, it said.
A report by Boston Consulting Group and MITSloan Management Review found that investments that deliver financial results are closely correlated with those that are deemed sustainable (Investing For A Sustainable Future, 11 May 2016). Separately, a study by Barclays found that investment-grade bonds with higher ESG scores outperformed those with low ESG scores between 2007 and 2015 (source: MSCI).
A few days ago, Aite Group, the consultancy, said that environmental, social, and governance strategies are becoming increasingly adopted by the wealth management sector. “Overall, individual firms’ approaches can vary significantly, along with the extent to which investment analysis is performed. But there is a growing recognition that ESG factors can be material to investment performance, as well as risk, and that integrating such factors into the investment process aligns with a long-term investment horizon,” Aite said in a report.
Indosuez’s Collin said that his firm does not adopt a “Manichean” attitude towards investments, such as refusing – with some exceptions – to ever touch a certain type of firm or business area. “We look at firms making progress in ESG as well as the good firms,” he said.
Does all this activism increase the workload? “Yes, it provides extra work but it is becoming a must-have,” he said.
The approach clearly puts Indosuez Wealth Management on the side of those businesses that see big value in active management, which is perhaps ironic at a time when the “passive” investment approach, driven by a bull market in stocks, disenchantment with fees and other factors, has boomed. But where there are pockets of inefficiency and clients who want the added benefits of ESG approaches, the active fund management mentality appears to have plenty of traction.
Indosuez WM knows that other large banks and wealth houses are pushing hard at the ESG and impact investing agenda, and this is already becoming a competitive field. Those firms which are able to make this business idea work will need to have consistent performance over the long term to convince clients that they really deliver.