Wealthy Flock To Sustainable Investments As They’re ‘Good For Your Reputation’

One good outcome of 2020 so far: Sustainable investments have rocketed according to new research published on Thursday (9 July).

Millionaires are planning to put nearly half (46%) of their wealth into sustainable investments by the end of next year, according to the World Wealth Report published by Capgemini, a consultancy.

That is up from 41% this year and the 36% that Swiss bank UBS said was being invested sustainably in 2018.

So called ESG (environmental, sustainable, governance) investments have been around for years. Though there is no universal recognition of what counts as ESG, rich clients usually start by asking their wealth managers to screen out “bad” stocks from their portfolios. Out goes arms, tobacco and mining companies and in comes renewables, tech and firms with good governance.

Pre-pandemic, many dismissed this type of investing as a fad that would not stand up in turbulent times. As coronavirus hit, there were fears the rich would forget their good commitments and put their money somewhere safe instead. However, the last four months have proved otherwise.

“I don’t think ESG is a ‘thing,'” says Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management. “I think it has transcended being a trend or a niche in the industry and, quite to the contrary, I think ESG is becoming quite mainstream.”

Data backs this up: Morningstar

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says that $21 billion was invested into ESG funds and companies last year, but inflows for the first three months of 2020 were already half that at $10.5 billion.

ESG Investing Makes You Look Good

The World Wealth Report says the biggest reason for the wealthy to invest sustainably is “higher returns.”

Over a ten year period, many ESG funds have out-performed their non-ESG rivals, according to analysis by Morningstar.

Even during the madness of the last four months many have done better, thanks to being underweight in energy stocks like oil.

However, there is another motive at play which was not there previously: Sustainable investing makes you look good.

Nearly three-quarters (73%) of people think more positively of billionaires that stop investing in controversial industries, a recent poll found.

“The risks of not thinking through reputational risks and not taking reputation seriously are only continuing to increase for individuals by the day,” says Luke Thompson, a partner at Transmission Private, a London-based communications agency which commissioned the survey.

While there are those who opt for ESG investments because they genuinely believe it is the right thing to do, there are many doing it just to boost their reputation. And a growing number of companies are capitalising on this insecurity.

“I have seen some private banks and family offices marketing ESG and sustainable investment products on the basis of being ‘good for your reputation,'” says Jordan Greenaway, managing director at Transmission Private.

Already many institutional investors have been shamed into going more green. Blackrock

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‘s Larry Fink has long asked client companies to take more action on climate change in his annual “letter to CEOs.”

In May, Norway’s sovereign wealth fund withdrew from several firms, including commodities trader Glencore, after putting a limit on coal-related emissions.

So it was only matter of time before wealthy investors felt a similar reverse peer-pressure. Whatever their motives, however, few will decry their decisions. More sustainable investing is a rare good news story.