Whether you’ve read about it or heard about it, it is no news that ESG-oriented investing and strategies have recently experienced a meteoric rise.

During the past five years, the investment decisions and priorities of managers and advisors over the wealth and investment industry have evolved significantly. Today, there is an increasingly high interest in ESG issues and the key role ESG investments play in economic recovery.

ESG: Up until now

It is almost a year since our first article on ESG was published. It mainly focused on how to effectively incorporate ESG criteria into the whole investment process to add value for clients and offer investment opportunities that are both MiFID II & ESG compliant.

At that time, organisations were moving their first steps towards the whole ESG scenario, trying to rapidly adapt to what seemed to be the latest market trend, or “a passing fad” – as many have pointed out. On present day, the magnitude of investment flows suggests that ESG is far from being temporary, and that a strong ESG proposition can effectively create value and transform your business in the long run.

First, ESG adopters will experience a top-line growth. According to a recent survey, the main motivation for firms to integrate ESG into their investment process is to respond to clients’ demand. Indeed, ESG drives customer preferences on whether to leave or choose a firm based on the quality of their ESG offering and how it is delivered to them. ESG is therefore a golden opportunity to attract more customers with a more sustainable solution and better engage with clients.

Second, a productivity uplift. A strong ESG proposition will boost motivation within the company and attract talent through greater social credibility.

Finally, companies with good ESG management are able to weather financial crises and generally to perform better in the long term than those that pay less attention to sustainability factors. They will enhance investment returns by better allocating capital for the long term and avoid investments that may not pay off because of longer-term environmental issues.

Transparency at the core

As the social element, also known as the “S” in ESG gains importance now that the pandemic highlights the need for social responsibility towards local communities, greenwashing is top of the worry list for investors. The lack of exact regulations or definitions for what makes something sustainable or not opens up to the obstacle of companies mispresenting themselves when it comes to sustainable investing. Clients, investors, customers demand transparency and the ultimate objective for firms should be to support change by both projecting and nurturing investors’ wealth.

On a larger scale, players of the wealth and asset management industry will be witnessing the rise of a new professional figure, the Chief Sustainability Officer.

Indeed, research has shown that sustainability is deeply intertwined with your business’ financial performance and it is paramount to business strategy and decision making. For this reason, debate over sustainability must start and the top of your organisation, with an individual who can manage ESG related matters, takes accountability for the implementation of ESC etc. and becomes a key spokesperson for sustainability within investor relations.

In a world where attention to environmental, social and governance issues mount at a fast pace, companies are challenged to convert global megatrends into tangible risks and opportunities for their business to manage. Looking ahead, we expect that investors will recognise ESG issues as a core part of how they invest and assess value and risk, as a meaningful business driver with a decisive potential to power performance.