The world’s wealthiest individuals, family offices, and foundations, are preparing to plough billions of dollars into sustainable investments over the coming years, as they increasingly view addressing climate change as both a social responsibility and an attractive investment opportunity.
Research from Global Impact Solutions Today (GIST) and Barclays Private Bank, looks at data from 300 private wealth holders from 33 countries, with an average of USD833 million assets under management.
According to the research, the majority of wealth holders already take sustainability into account when investing, with 80 per cent saying that climate change is a relevant factor in the decisions they make for their investment portfolio.
Furthermore, more than two-thirds, 67 per cent, of the wealthy individuals and institutions that responded say they would also like family portfolio to meet the requirements of the 2c warming scenario outlined in the Paris Agreement.
Sustainable investments are soon expected to dominate these portfolios. Those that are already active in sustainable investing say it will make up an average of 47 per cent of their portfolios by 2022, and 54 per cent by 2027.
Even those self-described “traditional investors” are adopting ESG considerations into their portfolios, with nearly half now incorporating it into their decision-making.
Dr Rebecca Gooch, senior director of Research at Campden Wealth, which conducted the research, says that private investors are opting to invest sustainably due to a combination of climate and investment concerns.
The vast majority, 86 per cent, of high net worth individuals, family offices, and foundations believe their private capital will be essential in addressing climate change.
Meanwhile, investment returns are also making sustainable investing more attractive. More than two thirds, 70 per cent of those surveyed, see the transition to a global net zero emissions economy as “the greatest commercial opportunity of our age”.
“Sustainable investment returns are now successfully competing against those of traditional investments, and evidence of their effectiveness at tackling global challenges is becoming increasingly hard-hitting. In turn, a growing number of private investors are opting in,” says Gooch.
“Given that single family offices alone manage more than USD6 trillion in assets worldwide, this is helping to propel the industry forward at a time when sustainable solutions are needed most.”
The sustainable investing push could also be aided by an oncoming global wealth transfer, which is expected to put trillions of dollars into the hands of younger generations in the coming years.
Previous research from Allianz in 2019 found that millennials are more likely to take broad societal issues into account when making investment decisions.
However, doubt has been cast over the reality of their ESG intentions. A report from UBS in 2020 noted that while the majority of family offices regard sustainable investing as important for their legacies, it remained “unclear whether good intentions will turn into reality”.
“To regenerate our environment, economy and democracy, good intentions alone will not suffice,” says Gamil de Chadarevian, founder of GIST. “Prominent families, like those who contributed to the research, have a combination of expertise and capital to play a leading role for the future of our planet.”
Private wealth holders are currently using a range of approaches to sustainable investing. A handful, 30 per cent of respondents to the recent survey, are targeting investments that directly support a transition to a low carbon economy. Meanwhile, just under a quarter, 24 per cent are taking an exclusionary approach, seeking to avoid any companies that they assess as major contributors to the issue of climate change.
Most of these investors are allocating capital directly to companies, projects, and real assets, compared with 41 per cent of portfolios which are invested through indirect strategies run by asset managers and other intermediaries.
Damian Payiatakis, head of Sustainable and Impact Investing at Barclays Private Bank, says that private wealth holders see climate change as the next systemic challenge we have to face globally.
“From our conversations, I hear them express both a responsibility and an opportunity to use their capital at this pivotal point,” says Payiatakis.
“While we see heightened awareness, action does not always immediately follow. Moreover, navigating the rapidly growing green investment market is increasingly difficult,” he says.
Portfolio transitions may also be being held back by fears that companies’ claims about their environmental impact may be misleading, or “greenwashed”. Three quarters of private wealth holders, 76 per cent, say they are concerned about making an investment that has been greenwashed.
The survey, ‘Investing for Global Impact: A Power for Good’ finds that private investors would they would be most reassured by robust measurement and reporting, followed by trust in the leadership of the invested company or investment, and then the track record of past impact delivery from the company or fund.
