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It starts from the top

Mandate for a sustainable strategy comes from the institution - which makes a big commitment - and it trickles down into advisory for clients

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HOW sustainable is your portfolio? That isn't typical dinner conversation, but make no mistake: Sustainability is seen as a megatrend among wealth managers.

Over the past two to three years, some wealth managers have begun to build up their sustainability resources, including research, portfolio managers and trained client advisers. Others may only be just beginning.

One common thread is that the mandate for a sustainable strategy in wealth advisory typically comes from the top. This means the institution makes a big commitment - which may take the form of a public pledge of support for the UN Sustainable Development Goals (SDG). This then trickles down into advisory for clients, mainly through the implementation of ESG (environmental, social and governance) metrics into their fund and security selection, or helping to identify investable themes in support of the UN SDGs. Some banks also create sustainable discretionary portfolios.

Ultra high net worth clients may take a step further to venture into impact investing, which channels capital into enterprises with explicit impact goals.

A survey conducted late last year by the CFA Institute found that 39 per cent of retailinvestors said they were very interested in ESG investing, and the same percentage indicated potential interest in the future.

Interestingly, the Covid-19 crisis appears to have confirmed the expectation that companies and funds that rate highly in ESG outperform, despite volatility. Morningstar data shows that 70 per cent of sustainable funds in the US rank in the top halves of their categories. And, 2020 also saw record inflows into sustainable funds.

SAYS Stuart Yong, Credit Suisse fund solutions specialist: ''As we increasingly question how we make, use and dispose of goods and services, many of our clients begin - by extension - to question how we ought to be investing to stay ahead of causes they are personally committed to.''

These values, he adds, are not confined to younger ''millennial'' investors. ''As such, we have also given it due attention as a standalone supertrend on our platform.''

At UBS, a global leader in sustainable investments, the focus on sustainability has a pragmatic angle, particularly for their entrepreneurial clients. Mario Knoepfel, the bank's Apac head of sustainable investing advisory, says focus on sustainability has risen as clients realise that sustain able investments can generate equal or superior returns, and are also important elements of their business strategies. ''Sustainable investments help to de-risk their businesses and meet mounting consumer demand for sustainable solutions,'' he says.

Globally UBS has directed US$3.9 billion of client assets into impact investments to further the UN SDGs, making substantial headway on its goal to mobilise US$5 billion by end-2021.

BNP Paribas Wealth Management's Kanol Pal, senior advisor for responsible investments, says the bank's goal is to make sustainability part of ''business as usual''. BNP WM aims to achieve a higher than 90 per cent ESG rating in its recommendation universe, for instance. It has developed an in-house methodology to assess funds, comprising 130 criteria in six categories. These include ESG practices and exclusions, and voting and engagement policy. Funds are then scored or rated.

''Thirty per cent of our recommended funds in Asia have an ESG rating and we expect this percentage to go above 90 per cent ,"  says Mr Pal.

MARC Lansonneur, DBS Wealth head of managed solutions, balance sheet products, and investment governance, says sustainability in DBS's wealth management practice is of ''great importance''.

''Integrating ESG criteria into our investment selection process, as well as empowering our clients to make informed decisions via access to relevant tools are top priorities,'' he adds.

The bank has partnered MSCI to enable the integration of ESG criteria into its advisory and discretionary offerings.

It is able to systematically rate products including stocks, bonds and funds, and portfolios that it builds and manages. To date, around 70 per cent of the funds on DBS's platform are rated average or above, based on MSCI ESG ratings. ''Our objective is to continuously work towards improving this figure,'' Mr Lansonneur says. DBS has also integrated ESG criteria into its discretionary portfolios, ''rating each of them and communicating these to our clients, with a view to improving portfolio ratings over time''. It is also able to build bespoke portfolios with high ESG ratings based on clients' demand.

Standard Chartered Bank launched ESG Select, an in-house review framework ''to better support our clients in their selection of high quality ESG products with a strong performance track record'', says Eugenia Koh, head of sustainable investing and engagement strategy. Among the factors under review are the corporate profile of the asset manager who must be able to ''walk the talk'', and the extent of ESG integration, which shows whether ESG is ''fully institutionalised and therefore well integrated at the fund level, impacting the portfolio manager's analysis and decision making process''.

To be sure, there are misperceptions among clients, some of whom think they may have to sacrifice performance. SCB's Ms Koh says: ''There is growing evidence of the resilience of sustainable solutions, especially amidst the Covid-19 pandemic.'' A recent Morningstar study showed that close to six out of 19 sustainable funds delivered higher returns than the equivalent conventional funds over the past decade, and the majority of strategies have outperformed non-ESG funds over one, three, five and 10 years.

 

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