The Need for Purpose-Driven Investors in Emerging ESG and Private Bank Investing

 

The signal in favor of sustainable investing is huge and exciting, but the market sentiment remained a big hurdle; the reason stakeholders think that the growing performance can be expanded beyond the realm of financial data analysis to a more practical indicator that will attract more inflow. Although environmental, social, and corporate governance (ESG) may be emerging in some regions, private banks globally are now creating a channel for potential investors to take advantage of.

One major obstacle so far identified is the High-net-worth entities who propagate ESG concerns but are yet to put their money in it, either because they are not convinced about the Return On Investment or issues with the institutions. Contrary to this attitude, recent evidence suggests that companies that follow good ESG principles usually perform better, exceeding market projections. Perhaps for their ability to overcome volatility and are more inclined to sustainable growth- long-term returns.

For this reason, wealth and asset managers are advising clients to invest in enterprises that are well-grounded. So they can profit from the increasing adoption of ESG, not just for the potential positive ROI, but not all can preemptively adapt to the risk factors. While the debate about who is encouraging sustainability more between the institutions and their investors continues, it is obvious that sustainability drives corporate results for the banks before investors, placing the responsibility more on the organizations.

Against this background, are there concerted efforts in private banks to introduce ESG-related products?

Promising reports from Asia suggest that with policy shifts and rising awareness, private banks are opening their doors to the ongoing sustainability revolution. Though with projected growth in demand for products or portfolios integrating ESG as basic selection yardsticks, compared to pure ESG thematic portfolios that are still seen as outpost investments.

Private Banks are constructing their ESG investing platform and creating Knowledge based awareness as part of a long-term obligation that involves adopting unified changes that reflect staff and client commitment, research and product selection, and so on. This is more than just hosting ESG-friendly portfolios because investors may not purchase ESG portfolios without a proper understanding of their worth.

Just recently, Temenos announced ESG Investing as-a-service, running on Temenos Banking Cloud and any other cloud to 1,500 banking and fintech managers at Temenos Community Forum in London. A service described as capable of accelerating “time-to-market for ESG compliant products and reporting” and reduction in the cost of expansion to encourage private banks to use it.

Standard Chartered had also launched an “ESG Select” initiative. Fresh criteria to be used on wealth solutions that are inclined to a sustainable ESG product on her platform, including Standard Chartered ESG funds via its Wealth Management group of products for retail banking customers- as sustainability investing is now influencing mainstream banking.

Interestingly, global ESG assets are likely to surpass $53 trillion by 2025, based on Bloomberg's explanation, a number that represents over a third of the $140.5 trillion estimated assets within organizations, just as the global trend for the initiative gathers momentum. The possible impact of the UN Global Compact on the corporate sustainability program, already adopted by 16,000 companies in 162 countries, comes to mind.

With this rising trend, how serious has green-washing become?

It seems some institutions are not willing to adopt ESG or don't have the right platform. Hence, adopted green-washing, which is heavily misleading investors into wrong investing.  Green-washing is contributing to wrong signals that are still holding back some High-Net-Worth players from participating. It is on record that some institutions, even market leaders, may have rolled out acclaimed eco-friendly products that turn out to be untrue, thereby negatively impacting the environment.

The good news, however, is that ESG investing is achieving its set target, as findings suggest that companies with high ESG scores typically benefit from reduced costs compared to their poor counterparts. Several institutional ESG-related fund asset managers reported a growth of almost 300% from 2016, as shown in 24% of all 13F filings for the interval ending Q3 2021. ESG funds show strong performance in 2020, outperforming traditional funds even at the hit of the COVID-19 pandemic

The current structural gaps impeding ESG growth

Not every ESG factor is easily measurable, hence will be difficult to translate to income growth or improved performance. Existing corporate sustainability leaks are still lop-sided in the process and procedures and do not reflect actual performance.

Moving Portfolios- Structuring a sustainable portfolio to offset specific needs is often time-consuming, with uncertain financial and sustainable effects in terms of data analysis, right product selection, the emerging climate trend, and Engagement.