Investor attitudes towards climate change and regulatory change, which in turn are forcing businesses to become more sustainable, means advisers cannot afford to ignore environmental, social and governance (ESG) issues.
During a VanEck “Making financial sense with ESG investing” webinar today, MSCI ESG research executive director Michael Salvatico said high net worth individuals, as well as mum and dad investors, are bringing different questions to their advisers.
“They’re asking can their investments deliver positive social outcomes and competitive returns, how can they align their investments with their values, and they’re concerned about issues such as climate change risks,” Salvatico revealed.
“You can take these questions and bring them into a framework based on investor aims.”
He said the ESG framework is broken into three components: integration, values and impact.
“Integration is the largest part and the area we focus on the most as it’s applicable to all investors and covers their financial objectives, so incorporating ESG criteria to enhance long-term return while managing ESG financial risk,” he said.
Broader goals are captured by aligning the portfolio with the investor’s ethical or political values – not necessarily aligned with financial returns – and also generating measurable social or environmental benefits, as well as financial returns, he added.
He also underscored key themes of the changing investor alongside the $30 trillion wealth transfer from baby boomers to 90 million millennials to take place over the next few decades in the United States.
“This is a meaningful amount of money that’s moving into the millennials’ control,” he said.
“And we know millennials have greater expectations around their investments – research says 67 per cent believe investments are a way to express social, political and environmental value, versus 36 per cent of baby boomers.
“In addition, 90 per cent of millennials want to grow their allocations to responsible investments in the next five years.”
He said the latest Responsible Investment Association Australasia report found responsible investments in Australia made up 55.5 per cent, or $866 billion, of all assets in 2017.
“In the previous year, the figure was at 45 per cent, so we’re seeing a marked increase in the allocation to responsible investment strategies in Australia,” he noted.
In March, the VanEck Vectors MSCI International Sustainable Equity ETF (exchange-traded fund) was listed on the Australian Securities Exchange.
