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Why Every Investment House Needs An ESG Strategy

By Kleber Oliveira on

When it comes to environmental, social, and governance (ESG) goals, it’s often thought that this falls mainly on the investors rather than the ones processing the investment. Sustainable operational practices are paving the way for all business developments, not just those who hold a high-profile. The reason for this is that there’s a growing need for all organisations to address sustainability factors while still providing value to their clients and consumers.

For investment houses, an ESG strategy expands into many channels – mainly the relationships they manage and the investments they make. This can even extend to leadership styles and company audits. As a result, meeting and upholding a strong ESG plan can give you a leg up on your competitors with potential investors being easily able to evaluate your company.

With more socially conscious investors, it’s apparent that ESGs can no longer be ignored. As per Investopedia, 2018 saw investors holding $11.6 trillion in assets chosen according to ESG criteria. In 2016, this figure was only $8.1 trillion. If these are the kind of numbers and assets your investment house is looking to generate, this article will take you through everything you need to know about ESGs and the importance of their criteria.

What are ESG goals

What is an ESG Strategy?

The first step to crafting an effective ESG strategy is understanding what it is and its requirements. Some investors may be more familiar with its pseudonym “sustainable investing”. Both of these terms are an umbrella for investments that seek positive returns and that create long-term impacts on society, the environment and the business’s performance. These include several forms of investing: impact, social responsibility, and value-based.

Depending on the operation and investment principals, investment houses who strive to support ESG goals can impact a number of global and local aspects. Environmentally, business activities can contribute to the problems pertaining to air, land, water, ecosystems, and human health. Those who are proactive in their efforts in reducing emissions and impacting climate change can minimize their environmental liabilities.

Socially, problems can be addressed by promoting a positive society. This can be done by encouraging safe labor environments, thorough auditing, and protecting human rights. Governance, on the other hand, refers to the way in which companies are run. This includes corporate risk management, addressing diversity, and the accountability of the board. Positive governance is effectively done when the interests of share-owners and management align.

Why an ESG Strategy Benefits Your Investment House:

The underlying purpose of ESGs is to encourage businesses to perform with the future in mind. With the combination of global issues and a rise in social consciousness, investors are looking at companies to act responsibly. Those who display a proven track record can expect higher levels of investor buy-in and success. With this in mind, let’s take a deeper dive into the advantages your investment house can benefit from.

ESG investments

Meet Client Demands

When it comes to client demands, ESG criteria aren’t only important to a younger generation but to responsible investors too. In former years, socially responsible investments gained the reputation of needing a tradeoff from investors. The school of thought here was that due to the limited universe of impact investing, the return in profit was limited. On the flip side, companies who were perceived as “bad” saw higher stock prices. However, this is no longer the case.

Recently, there has been an undeniable shift towards responsible trading. It appears that ethical concerns are becoming an underlying force for investment practices. For example, following the BP 2010 oil spill, an otherwise high-value investment saw billions of dollars lost in company stock prices.

In Investment and Wealth Monitor’s 2019 report,  it is said that 88% of millennial investors are looking to put their wealth behind supportive ESG holdings. Furthermore,  Old Mutual cites that 59% of investors believe that it’s their duty to invest in companies who are trying to make the world a better place for the next generation. In an industry that’s seeing global assets under management (AUM) in sustainable investing increase by the trillion, it’s essential that investment houses keep up.

Enhance Your Public Image

Although a positive public image shouldn’t be the motivator for adhering to ESG criteria, the effect is undeniable. If you’re looking to differentiate and grow your practice, integrating ESG principles into your business model can be highly effective. These solutions can make it easier to serve a broader scope of clients while maintaining a stellar reputation.

In the pursuit of better investment outcomes, financial advisors create the opportunity to add value to their clients and other stakeholders. On a client level, growing sustainable practices can instill trust and drive satisfaction levels. On a grander level, those who are seeking financial help will resonate with your positive image and ethical practices.

Appeal to Younger Investors

In a 2018 report done by the Bank of America, millennials are the leaders of ESG investing. Appealing to millennials should be high on any financial advisor’s list due to the fact that they’re the next generation of health. Some investment houses may struggle, however, to attract this pivotal generation without a concrete ESG plan.

At the end of the day, millennials are seeking companies who know that good ESG practice is good business. With the previously mentioned report in mind, 77% of millennials are showing interest in impact investments. In contrast, 40% of high net worth investors are seeking the same investment opportunities.

The facts are that these younger investors are looking to use their wealth for good. This means that they’re looking for investments that are morally and ethically sound while still meeting a positive return. Therefore, this can pose a strong opportunity for advisors to position themselves as a trusted financial service provider for the younger investor and as such, broaden their client range.

Responsible investing and millennials

How Britech Can Help You with Your ESG Strategy:

The world is changing and investor engagement is shifting along with it. Adopting ESG investing is increasingly becoming a driving force for the financial world. A platform like Britech’s SaaS allows for a swift, smart and dynamic investment environment that accurately addresses your client’s needs. With more than a quarter of $88 trillion global AUM being invested in ESG principles, it’s highly encouraged that such strategies are quickly adapted.

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