Wealthy investors matching words with action on ESG

Wealthy investors are increasingly putting their money in business that are socially, ethically and environmentally conscious, according to three new studies.

Capgemini’s World Wealth Report 2020, shows that 27% of high net worth individuals (HNWIs) — those with of $1 million or more to invest — are interested in sustainable investment products.

That figure rises to 40% among ultra high net worth individuals (UHNWIs), defined as those with $30 million in investible assets.

Action as well as words

Crucially, that interest in sustainable investing is also translating into action.

Wealthy investors surveyed by Capgemini said they intend to allocate 41% of their portfolio to businesses actively pursuing environmental, social and corporate governance (ESG) policies by the end of the calendar year. That figure is set to rise to 46% by the end of 2021.

Their main motivations include higher returns (39%), increased understanding of ESG products (29%) and a desire to give back to society (26%).

The interest in sustainable investing in is most pronounced in wealthy investors under the age of 40. Capgemini found that 41% of HNWIs in that age group were drawn to sustainable investments compared with just 16% of those aged over 60. That figure rose to 49% of under-40s in the UHNWI category.

The “COVID-19 effect”

Meanwhile, a new report by the financial advice firm De Vere shows that the UK is very much in line with this global trend. De Vere says 26% of its wealthy clients are either considering or are actively engaged in ESG investing.

CEO Nigel Green says one of the reasons is what he calls the “COVID-19 effect”.

“The fundamentals that ESG investing represent and champion have become more highly valued by investors than ever before in the last few months,” he says.

“The global pandemic has brought into laser-like focus how the health of our planet affects human health which, in turn, affects the way we all live and work.

“These shifts in values and new economic realities have meant that companies’ responses to the public health emergency are being carefully scrutinised by investors in terms of their social and governance policies too.

“These include employees’ rights, consumer protections, board diversity and corporate transparency and stakeholder accountability.

“Firms which have responded well and which have strong ESG credentials are being rewarded by investors.”

Academic evidence

There is also new academic evidence for the growth in interest in sustainable investing among well-heeled investors.

Amir Amel-Zadeh at the University of Oxford and Professors Mary Pieterse-Bloem and Rik Lustermans at the Erasmus School of Economics studied the investments of wealthy individuals across the Netherlands, France, Germany and Belgium.

They found that companies with a good sustainability rating received 15% more investment per month over the three-year period 2016-2019, compared to those with a low rating.

There is a growing body of research into the investment preferences of institutional investors with respect to sustainability ratings. However, this is one of the first studies into how private individuals use this data to make their investment decisions.

“Sustainability matters”

Commenting on the findings, Amir Amel-Zadeh said that the research not only shows that sustainability matters to investors; it highlights as well “the importance of making them aware of the social and environmental impact of the companies they invest in”.

“It also demonstrates the increasing influence of sustainability ratings agencies in directing capital towards more sustainable companies,” he said.