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ESG shift driven by what really matters

4 May 2020

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Financial services are playing an active role in not just preserving the future of our planet, but also considering broader social factors. Many think this action is solely client-driven but Ian Rumens insists that companies need to strive to be better for their own sakes as well as their clients’ and wider society.

There are some leaders in global finance who everyone sits up and takes notice of. The former governor of the Bank of England, Mark Carney, is one such figure. Christine Lagarde, president of the European Central Bank, is another. Larry Fink, the CEO of the world’s largest asset manager BlackRock, is also a voice worth listening to.

All three have something in common beyond being held in universal high regard in the world of international finance; they’re all concerned by climate change as an existential threat to life as we know and enjoy it today.

In a letter to CEOs at the start of this year, Mr Fink wrote:
“The evidence on climate risk is compelling investors to reassess core assumptions about modern finance.” Mr Carney and Ms Lagarde both spoke of the need to speed up climate risk assessment and disclosure when they fronted the launch event for the 2020 UN Climate Summit, due to take place in Glasgow in December.

If financial services firms were able to bury their heads in the sand on environmental issues before, they certainly can’t now.

Clients demanding changes

For institutions, of course, it’s important to adapt to meet shifting client demand. We’re having increasingly regular conversations with our international client base about environmental, social and governance (ESG) factors.

This is also called socially responsible investing, sustainable investing, green finance, impact investing and much more besides. But the phraseology we use is immaterial; what it boils down to is what matters to the client.

A generational perception shift is already underway and that’s certainly contributing to the increased popularity of ESG. Millennials are much more concerned with the environment, being socially responsible and working for companies that prioritise their social and environmental governance and don’t engage in harmful practices that detrimentally impact the planet.

The things that matter to them – whether it’s ethical labour practices or sustainable building projects – are leading their decisions when it comes to wealth management.

Previous generations generally concentrated on making their fortune and then, upon retirement, considering and supporting philanthropic causes that resonated with them.

For the current generation, making money goes with exploring the good that it can do. That dynamic is only going to become more prevalent as the current teenagers and twenty-somethings begin to take control of the wealth.

Family Offices are already addressing the client demand for ESG. According to the UBS Global Family Office Report 2019, one in three Family Offices are engaged in sustainable investing and the average allocation from those entities is 19% of their portfolio. Those figures are certain to increase in the coming years.

Organisations need to change

Of the one in three Family Offices surveyed to be engaging in sustainable investing, 46% have adopted the integration of ESG factors into analysis and evaluation. This highlights an important facet of the ESG movement; reporting.

ESG isn’t just affecting how we manage our clients’ assets; it’s affecting the way we report on those assets as well.

This isn’t easy. There are a multitude of standards and criteria for reporting on ESG and none of them are universally accepted or applicable. Reporting for a manufacturer is going to require totally different metrics to those that are useful for a real estate fund.

One wide-ranging standard that some organisations are integrating into their measurement is the UN’s Sustainable Development Goals. These attempt to address everything from climate change to poverty eradication to equality of opportunity and the UN wishes to achieve them all by 2030.

But factoring ESG into our client work is just the start. What organisations need to do is start looking inward and asking themselves that same question clients are asking – what matters to us?
The company that doesn’t start to prove it’s working towards a better, more sustainable future isn’t going to survive to be a part of it. To return to Mr Fink’s letter: “Climate change has become a defining factor in companies’ long-term prospects.”

The next generation doesn’t just consist of future clients; it’s also made up of our future investors, workforce and political leaders and public figures.

They’ll demand – far more vocally than any generation before them – that companies reflect their environmental focus. At Intertrust our ESG policy is to play our part as a leader in responsible business practice.

In our own business we’re taking a broad view, addressing everything from macro initiatives like the Universal Declaration of Human Rights and anti-bribery measures to a local focus on positively impacting the local economies where we live and work.

In the Channel Islands, we’re aligning ourselves with Guernsey Green Finance to ensure that our offering reflects what the industry is aspiring to achieve and that our employees and solutions meet the best local standards. Our team is also working on a number of green transactions, from green mortgages through to investments in solar farms. Our goal is to combine long-term profitability with social responsibility and ESG factors. That ambition is good for our clients, our employees, our industry and, most importantly of all, our world.

 

* Originally published in BLGlobal magazine

1 https://www.blackrock.com/corporate/investor-relations/larry-fink-ceo-letter

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