Sustainable investing will continue to rise in popularity, driven primarily by high-net-worth millennials who are more socially conscious in investing, according to a report out Wednesday.
Meanwhile, asset and wealth managers are increasingly integrating ESG (environmental, social, and corporate governance) into their primary portfolios in response to growing client demand, according to the report, titled Top trends in wealth management: 2020, by Capgemini, a Paris-based consultancy and technology services firm.
“This trend is driven by a paradigm shift in client demography,” says Ferreol de Naurois, vice president and head of the Global Capital Markets Practice at Capgemini. “As more millennials, as well as women, investors come to the wealth market, they are pushing for green, ethical investing.”
An estimated 82% of the world’s high-net-worth individuals—those who have at least US$1 million in investable assets, excluding primary residence, collectibles, consumables, and consumer durables—are under the age of 40, according to Capgemini. And a wave of wealth transferred from baby boomers to their heirs will give rise to more younger investors.
Young and women investors tend to be more considerate about societal impacts that come with their wealth generation, according to the report. About 50% to 78% of asset holders are gauging or applying ESG factors in their investment strategy, according to the report, citing third party data.
There is significant interest from Asia, where high-net-worth individuals are expected to increase nearly 20% of their asset allocation toward sustainable investing.
“Asia has been trendsetting in wealth management, and this year is no exception,” de Naurois says. “We see more and more funds in sustainable investment in this region.”
The momentum of sustainable investing is also underpinned by improving financial returns and lower market risks associated with ESG-focused investment vehicles, de Naurois says.
“If you invested in green energy such as wind mills five years ago, it will not yield great returns, at least not comparable to returns from oil-related investment,” de Naurois says. “These days, sustainable funds are almost on a par with non-sustainable funds.”
Regulatory reforms are also pushing consideration of ESG factors for wealth managers as well as their clients. Much of this trend came from Europe, where governments require higher transparency, and additional reporting of big corporates’ operations and practices, de Naurois says.
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