The demographic of high and ultra-high net worth individuals (UHNWIs) is changing, writes Andreas Meier, chief investment officer at Lombard International Assurance.
There are more young and diverse individuals in this wealth bracket than ever before. Combined with a growing awareness of climate change issues, this has led to a significantly higher interest in sustainable investing as wealth advisers seek to meet the needs of an emerging client generation that cares as much about investment returns as they do about the impact their portfolio has on the environment.
However, confusion around sustainable investment options remains high, driven by unclear communication on the topic. This means that advisers are missing out on an opportunity to capture the trust and attention of the next generation of wealthy individuals.
Environmental, social and governance (ESG) factors are used to assess whether an investment can be classified as sustainable. In the US, Canada, Japan, New Zealand and Australia, ESG investing increased by 34% between 2016 and 2018, according to the Global Sustainable Investment Alliance.
In Europe, total assets committed to sustainable and responsible investment strategies grew by 11% to reach €12.3trn (£10.8trn, $13.8trn) over the same period. While this is still a relatively small portion of global investment, this type of growth should make any wealth adviser pay attention.
This growth has largely been driven by an increasing number of women and millennials entering the HNW and UHNW bracket. Both groups are more likely to align their investment portfolio with their personal ethics and interests.
According to Morgan Stanley, 84% of women expressed an interest in sustainable investing compared to 67% of men. EY has projected that the $30 trillion transfer in wealth to millennials will see ESG continue to take up a growing share of global investments.
Moreover, legislative and regulatory measures are increasingly being adopted internationally which are cementing ESGs importance in the wealth management industry. France’s Article 173, for example, already requires investors to report on how they account for ESG criteria in their investment policies.