With ESG becoming more and more of a priority to investors across the globe, how are the advisers and brokers coping with this increase in demand? International Investment's Gary Robinson spoke to four of biggest names in the industry to find out more…
Simon Parker, pictured below left, is commercial director at global IFA giant Holborn Assets. The company has offices and advisers around the world, with large numbers in the Middle East and Asia.
"We certainly have seen an uptick in Environmental, Social, and Governance (ESG) and Corporate Social Responsibility (CSR) investing. "[But]
these are not just buzzwords for our clients and our company.
"Regarding ESG, investors are increasingly applying these non-financial factors as part of the process to identify growth opportunities and material risks. We believe that the traditional risk-return equation will be rewritten to include ESG factors.
Parker points that many of Holborn Assets clients now look to incorporate ESG factors into the investment process alongside traditional financial analysis.
"Our clients tend to ask us to screen out activities such as weapons, tobacco, poor labour practices etc," he says.
"At Holborn Assets we have seen an uptick in ESG investing in the first half of the year. The coronavirus pandemic and the Black Lives Matter (BLM) movement in the US seem to have a significant impact on everyday life, raising social awareness. "
Parker believes that ESG investing will only become more popular I think it will become more even popular but more as general movement as opposed to having to find a specialist ESG investment manager pointing to BlackRock and its recent stance on climate change.
"I suspect the industry will just naturally avoid morally questionable investments," he says.
Women
On the types of investors that are favouring ESG, there is a real rise in millennials and women.
And regarding regional differences, Holborn has found that there has been a particular growth spurt in the US and UK, rather than in the Middle East.
"Obviously in the Middle East Shariah funds are [already] more socially responsible and wont invest in ‘ haram' products," he added
"ESG investing and Islamic finance in the Middle East are complementary as both promote environmental and social responsibility.
"In the last ten years, the US, the UK and various other countries worldwide have enacted over 500 measures to promote ESG issues. We believe that the financial industry recognises the great potential for alpha generation through ESG factors."
According to DeVere's founder and CEO Nigel Green, pictured below right, 56% of investors that have conducted business with the firm say sustainable investments (ESG) are a new "safe-haven".
DeVere Group, which operates in more than 100 countries globally, recently reported that 56% of clients who seek to include environmental,
social and governance-orientated investments into their portfolios do so citing that such sustainable funds offer financial protection in times of uncertainty.
With a safe-haven asset classed as a financial instrument that is expected to retain, or even gain value during periods of economic downturn, this can be seen a huge thumb's up for ESG from global investment clients.
"There's been a massive surge from clients this year looking for ESG investments," says Green.
"Indeed, more than a quarter of all clients are currently considering or are already actively engaged in responsible, impactful and sustainable investing.
"It's a phenomenon that's particularly prevalent with millennials, with eight out of 10 putting ESG credentials at the heart of their investment decision-making process."
Green admits that has been particularly interested in the reasons why global investors are seeking ESG in the first place. Not only covid-19 awareness, but the new belief in ESG as a "safe haven" has been a surprise.
'Mutual responsibility'
"Of course, the global public health crisis has acted as a wake-up call in many respects," he says. "It has prompted a growing collective awareness of mutual responsibility that fits perfectly into the narrative of ESG investing.
"But what's most surprising is that the majority [56%] also now say that they perceive ESG investments as the new safe-haven asset class. As such, they are increasing their exposure to such funds in a way that traditionally they would have done with, say, gold or U.S. government bonds."
Green agrees with this view, as he says, all the latest research underscores that the majority of environmental, social and governance investments have outperformed their non-sustainable counterparts this year and have had lower volatility.
"This cannot be ignored by retail - and increasingly institutional - investors who are looking for resilience in these highly unusual times of this new era," Green says.
Millennials
Previously, the deVere CEO has commented that the trend for ESG is only likely to intensify as millennials, who are statistically more likely to seek responsible investment options, become the major beneficiaries of the largest inter-generational transfer of wealth - an estimated $30tn in the next few years - meaning we can expect both retail and institutional investors to continue to pile into ESG.
"The data shows that the view held by traditionalists who claim ESG investments are ‘nice to have' but not ‘a need to have,' falls apart under scrutiny in the virus-driven global economic downturn," Green concluded.
"And whilst this short time frame is not determinative, those investors citing ESG's safe-haven credentials are, for now at least, being proven right."
Robert Parra is president and CEO of Suprabrokers - a financial advice/broker organisation that operates across a range of countries in Latin America and the US.
Based between his headquarters in Buenos Aires and Miami, Parra, pictured below left, and his teams have clients almost everywhere in between across this vast region.
We asked Parra what kind of increase in ESG interest have you seen in recent times? And why do you think it is happening?
"It is a trend that is beginning to gain strength in investors in the region," says Parra. "For example, we are still far from Europe, where we see flows growing at a high speed, but ESG is definitely "the next big thing" that is on the mind of investors and which is being actively promoted
by investment funds.
Has there been any big uptick after covid-19 in ESG interest?
"Yes," he says. "Social responsibility and the impact that companies produce are on the investors mindset as a great bet for the future and as a must within the portfolio diversification strategy.
"With respect to covid-19, it [has] definitely accelerated a trend that was already growing and investments of this type demonstrated significant resilience in the face of the market situation during the past few months.
Parra says that he hasn't necessarily seen growth in ESG higher in certain regions, but more-so or in certain groups of people (ie millennials).
"As previously mentioned, this trend will accelerate its growth curve in the face of the pandemic and we do not consider that it should be assigned to a certain region or market segment," he says.
"It is true that in developed markets this is not new but now it is a global trend and Investors are now much more aware of the impact and potential of ESG investments."
Aiva is another key player in Latin America. Carla Sierra, pictured below right, (Head of Investments) at the company explains the increase in ESG interest and why she feels it is happening now.
"There has certainly been an increase in questions by clients about ESG, looking at changing their investment profiles to include more ESG," she says.
"We have definitely noticed an increased awareness in some of our clients that the way they invest does contribute to how the world shapes up. As ESG investing receives more attention, investors have started to hear more about it, raising the subject before it is mentioned by advisors, showing a proactivity not previously experienced with ESG.
As with the other advisory firms across the globe, covid-19 has, Sierra points, "given a nudge" to the trend towards ESG as more people seem to be reflecting on the environment and what actions they can take personally.
"The long-term trend is clearly upwards with regards to the adoption of this investing style. Covid-19 did accelerate the process, [but also] with ESG strategies delivering better returns this year thanks to a lower exposure to the energy sector, especially oil and gas.
Sierra concludes that in Latin America there has been an increase in interest in ESG, but it is not as strong as the spike that has been reported in Europe.
"This is not a surprise as there is often a lag between trends in the larger markets overseas and those in LatAm," she said.
"This has occurred primarily, but certainly not only, in the younger investors who tend to seek change in how things are done, which will increase the importance of ESG investing as they accumulate wealth over the years."
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