Environmental, social and governance (ESG) investing is more lucrative for wealth managers and investors than ever before. Current affairs surrounding ESG themes paired with new EU regulations has seen responsible investing skyrocket. And with large players such as Coutts becoming a B-Corp, more wealth managers than ever are leading with sustainability.
The availability of negative screening - the removal of companies’ stocks from a portfolio where they score poorly on ESG factors relative to their peers – is now so widespread it is almost a default offer to the UK’s wealthy.
Our results from the 15th annual Private Client Wealth Management survey, in partnership with the Financial Times, show that the availability of negative screening – the removal of companies’ stocks from a portfolio where they score poorly on ESG factors relative to their peers – is now so widespread it is almost a default offer to the UK’s wealthy.
Four in five of the leading UK wealth managers surveyed offer negative screening, a 10% increase each year since 2019. Positive screening, the selection of companies to invest in that score highly on ESG metrics e.g. the top 20%-50%, has however remained stable over the same time, offered by 60%-70% of wealth managers.
Back in 2018, many wealth managers told us ESG was “embedded into their investment processes” despite, at the time, few having labelled ESG services. At that point many were “considering” efforts to promote corporate responsibility and protect the environment for future generations. And it now looks like those efforts have come to fruition as wealth managers aim to capture more of the fast growing ‘responsible investing’ market.
This industry trend to negative screening suggests a greater client demand for ESG investing from wealth managers. But it is also most likely the most profitable option for wealth managers to offer, being less restrictive on portfolio managers. It is also likely to be more acceptable to investors not wholly bought into sustainability activism through their wealth, allowing them to follow the trend without as much of a perceived compromise.
However, it will be interesting to see if the availability of positive screening, will reach the same heights. EY’s Global Wealth Management Report 2021 finds that over 2 in 5 wealthy investors in Europe want to adopt positive screening by 2024, and 22% dropping the traditional approach. So regardless of the motive, it looks like, more and more wealth managers will be offering ESG investing options into the future.
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