ESG and the $53 trillion question for families and their advisers
13 Nov 2021
$53 trillion. That’s the figure which Bloomberg analysts predict global ESG assets under management will hit by 2025.
The development and growth of the ESG market has been phenomenal, and has been driven by a number of factors. This includes, importantly, a growing awareness of the world’s finite resources and the long-term unsustainability of certain types of enterprise whose business models and supply chains rely on resources or materials which are limited or which are actively contributing to climate change – this has never been higher on the agenda thanks to the ‘Greta Thunberg effect’ and this month’s COP26 meeting of global leaders in Glasgow.
The Covid-19 pandemic has added to this growing social and environmental consciousness, not least given its impact on fuel-intensive travel.
At the same time there has also been a significant generational shift.
Research by MSCI last year found that 90% of HNW millennials wanted their investments to be tailored to their values and, at Saffery Champness, we have certainly seen that the younger generation increasingly want to have or be part of a conversation around just how wealth is deployed. This includes those who are perhaps the custodians, rather than the creators, of wealth, who are becoming ever more engaged in how wealth is managed and what capital can achieve beyond financial returns.
The role of the trustee
Our role in this process with families starts from the principle of understanding their values and having an open conversation about what really matters to them. Each family is different and has different goals, and these need to be translated into a set of investments which provide not just financial returns but which ultimately enables money to do something that has real meaning for the family longer term.
While the growth of ESG has been huge, and there is a demonstrable interest from families and other investors, there do remain significant challenges.
First and foremost is perhaps the lack of a common language. The range of terms – ESG, impact investing, sustainable finance and more – create something of a cacophony which can make clarity difficult to come by.
This is starting to change, though, both through dialogue and mutual understanding about goals and outcomes, as well as top down regulatory developments – including the EU’s Sustainable Finances Disclosure Regulation which came into force in March 2021. This regulation is intended to improve transparency around the sustainability / climate risks of investments, how the impact of investments on the environment and society are disclosed, and how investments marketed as sustainable actually deliver on that promise.
Further, the International Organization of Securities Commissions has called for more formal regulation of the ESG ratings sector which many rely on to take investment decisions.
Despite this progress, greenwashing is likely to be an issue which will always be around to some extent. It is our role, as trustees, to look beyond the claims made by products and scrutinise their real value on behalf of families. These investments are often complex and it is critical to have strong working relationships in place with specialist advisers and consultants, with the trustee orchestrating and balancing the need to protect and grow the family’s assets in alignment with societal, cultural or environmental goals.
How can Saffery Champness help?
There are an enormous range of investment options. Saffery Champness has made investments for clients into ventures ranging from solar and windfarms – which provide a secure, government-backed income stream as well as a positive environmental impact – to micro finance funds which lend significant sums to individual entrepreneurs in third-world countries, helping them grow their businesses and providing for their families.
This diversification, coupled with greater transparency as well as investor appetite means that ESG is very much here to stay.
For trustees it provides a new means to ever more closely align a family’s values with its investment portfolio.
This can only be positive.
Saffery Champness works with clients to establish and manage structures in a range of jurisdictions which are particularly suitable for both ESG investing and philanthropic activities, including Guernsey, Switzerland and the Cayman Islands.
If clients and advisers want to find out more about ESG, and our approach to it at Saffery Champness, then please do get in touch. This is an area where our own values align with our clients’ and we welcome the opportunity to have a conversation with and deliver for families.
Want to learn about Saffery Champness’ approach to ESG? Click here to hear more from Phil Radford in our New Horizons video series.