Sustainable Investing: Investor Demand

Could you lay out how you’ve seen the behaviour of wealthy individuals, or high net worth individuals and institutions change, over the last decade, towards ESG?

I think it’s easier to answer on the institutional side, because it’s been very pronounced. I work largely with European institutions, so not very much exposure in the US. I work a little bit with Asia, as well. What I would say is, speaking from the European perspective, institutions and institutional investors, in particular, are having a greater focus on ESG.

I think it’s driven by two components. On the financial institution side or the asset management industry, they feel that regulation is coming, especially in London, that is going to mandate that they consider environmental, social and governance factors, especially material ones, in how they conduct business and how they report, especially. This is so their shareholders and their investors are aware of potential risks, more than potential upsides.

I think potential regulation, on the one hand, is changing behaviour. At the same time, I think the other factor is that there is just an awareness of environmental issues. I think, certainly, we can say climate change, but also everything from water scarcity and food security and energy efficiency. All these factors are being considered now, in how businesses are run and how investments are made.

On the social side and the governance side, as well, we have the same issue. Socially, how employees are treated, how customers and clients are handled, how business contracts are written, how well people are compensated and, of course, looking at gender issues. All of these things are more and more in the mainstream and this is changing weekly. You never used to have headlines about these issues and now, it really is every day.

On the governance side, we’ve had quite a few fantastic blow ups and very obvious key man risks and, certainly, PR issues. I’m thinking of Elon Musk, in particular. If you look at how Tesla is rated, I know it’s a public company, but there’s huge governance issues there. I think an awareness of these issues, a fear of regulation and then, at the same time, I would say there is a little bit of pressure now, from either shareholders or stakeholders, to consider these, in how businesses are operating. These are coming together and changing institutional behaviour.

On the private side, I think it’s less pronounced. In my experience, working with private investors, there has always been a focus on impact, inherently, with some of these people. They have been mission driven by certain passions. Whether it’s finding interesting technologies, whether or not they are good for environment, they still want to innovate. Looking at new building materials that can be applied to low-income communities. I think there have always been things that people are passionate about, and it’s manifesting itself in impact and now it’s got an impact investing name, so people can combine their passions and how they are spending their money.

I think it’s less pronounced, but now we have a way of categorising these types of investors and how this money is being put to work. I think it’s more prominent, just because we are hearing more about it, but I don’t really feel that of the older generation, that here are more impact investors. I do feel that is the case in the younger generation, but I think it’s more of an institutional shift.