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Responsible investment: an opportunity to differentiate

Nicolas de Skowronski, Julius Baer’s Co-Head Investment & Wealth Management Services, says that responsible investment has become part of the mainstream yet still offers intermediaries the chance to differentiate themselves.

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How should intermediaries meet growing demand from high net worth individuals (HNWIs) for environmental, social and governance (ESG) investments?
“To meet the expectations of their clients, financial solution providers need to embrace the opportunity so that ESG finds its place in their offering shelf and investment risk management. But just providing solutions with an ESG edge is not enough. Additionally, ESG data is key to controlling investment risks, as the diesel scandal in the automotive industry has demonstrated impressively. It is important for our industry to understand these correlations.”

Is there any evidence that HNWIs are looking for more sustainable investments?
“Yes, 50% of HNWIs say they own ESG assets or are interested in adding them to their portfolios. Anecdotally, at least half of the women and millennials among our clients are particularly interested in this topic. Generally, people are looking for purpose in their activities, including their investment decisions. We have collected this evidence in the course of writing our brochure, ‘Responsible Investment matters’. In addition, Julius Baer’s recently published ‘Global Wealth and Lifestyle Report 2020’ found that more than two third of all respondents globally believe it’s ‘extremely’ or ‘very’ important that companies implement programmes to improve the environment.”

What’s the range of responsible investment solutions?
“Responsible investment is not an investment solution but an approach to generating financial returns in a way that’s in line with clients’ core environmental or social values. As individuals increasingly state that their individual values are becoming just as important as financial returns, we believe that it is of paramount importance to add an ESG dimension to the investment process.

Investors have different levels of responsible investment to choose from. Sustainable investing, the first level, involves selecting companies with leading ESG qualities that also promise to generate attractive investment returns. Impact investing, the second form, goes further by generating a measurable positive environmental and/or social impact. Finally, in some cases companies are required to work towards a specific ESG goal.”

How is ESG investment evolving?
“We’re getting better at using the growing amount of ESG data to detect leaders and laggards in respective industries. The magic lies in identifying tomorrow’s leaders, as they are expected to deliver better investment returns. The United Nations Sustainable Development Goals (SDGs) provide valuable guidance, as investments in companies can be mapped against them. Many financial solution providers are beginning to do this. Additionally, we see an evolution in demand from investors, which is motivating banks to develop new solutions.”

Is there a trade-off between investment performance and ESG impact?
“This concern is no longer appropriate. Today, there is a much larger and more robust body of ESG data available than before. The correlation between ESG integration and strong companies with strong finances and, therefore, with better return potential is largely confirmed.”

How can intermediaries monitor contributions to UN SDGs?
“This is an area where a lot is happening and many financial solution providers are developing their offering around the UN SDGs. At Julius Baer, there is an overlap with our “next generation” investment themes, where we analyse long-term structural changes in society, markets and industries. Our thematic research identifies the companies that will benefit, and deliver sustainable growth and shareholder value. Intermediaries can use this research to monitor companies’ contributions to the SDGs and guide their investment decisions.”

What does Julius Baer have to offer?
“Julius Baer offers its clients an increasingly wide range of responsible investment solutions, ranging from captive discretionary mandates and funds, to advisory solutions, to ESG ratings on stocks or bonds. To help you make fully informed investment decisions, we include MSCI ESG ratings and MSCI ESG controversies for equities and fixed income in research reports and marketing material. Additionally, we publish the Julius Baer Responsible Investment Fund Ratings with recommended fund marketing material. 

For intermediaries specifically, we’re developing a dedicated ESG offering. Already you can offer our sustainable discretionary mandate solution to clients and access our deep ESG research expertise.”

Will ESG investing fundamentally change asset and wealth management?
“Yes. Responsible investment has moved into the mainstream of finance and is part of today’s zeitgeist. Investors want their values reflected in their portfolios; they want to create returns for society. Understanding the topic, and providing honest and unbiased advice on matching individual values, without being guilty of ‘greenwashing’, can differentiate an intermediary. All providers of investment solutions should have ESG products on their shelves.”

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