The Asia-Pacific CEO of the Swiss private banking house talks to this news service about environmental, social and governance-driven approaches to investing. He said clients often take the lead in driving conversations.
This publication has carried a series of articles about environmental, social and governance-themed investments over recent weeks. One of the firms it questioned was Swiss private banking group Lombard Odier. Vincent Magnenat, limited partner, and CEO Asia-Pacific, talked to this news service.
How far advanced is the wealth management industry in embracing ESG – are we at the early stages still or are there already signs that it is maturing and becoming “mainstream”?
Sustainable investing is no longer a niche. It has entered the mainstream. It is now prominently on the radar of private investors, who are rapidly catching up with the institutional world and increasingly asking us for solutions.
However, there is still a big requirement to educate and inform our clients on how ESG can fit within their investment requirements and their risk/return expectations.
With the growing sophistication of asset owners in the region, our clients are increasingly aware of social issues and want to do well by doing good, where possible, while securing solid financial returns.
How should a manager go about framing expectations of clients about the monetary returns that ESG investing makes possible? Have we moved beyond the idea that there’s any sort of trade-off between ESG and making lots of money?
At Lombard Odier, we believe companies that are sustainable will drive higher investment returns, and this is what we convey to our clients. Investors no longer have to choose between doing well and doing good. It is becoming easier to meet both goals at the same time.
We believe it is intuitive that if a company considers the lasting consequences of its actions, its chances of surviving to earn future revenues increase. It is also demonstrable. When looking at 41 different studies of sustainability and returns, Oxford University’s Smith School of Enterprise found that 80 per cent showed that good sustainability practices boosted share price performance. In fact, we have seen companies with very poor ESG starting to underperform in the market.
As a company that has survived for over 200 years, we do not compromise on returns. Focusing on risk-adjusted return remains the number one objective. In addition to preserving the capital and effectively delivering returns above the benchmark, we find a balance to integrate ESG. Within sectors, we favour companies with better, sustainable business practices.
When you start to talk to clients, who typically raises the ESG subject first? Have you noticed any shift over recent years?
Increasingly, clients are coming to us and asking what they could be doing with their wealth that would be more meaningful. Today, clients think that ESG issues are important, focusing on not just how much money is made, but on how that money is made.
We also see evidence of young people, our future clients, driving for change across the globe: we witnessed global protests from schoolchildren in March demanding that politicians wake up to climate change, and student protests last year for universities to divest holdings in arms and fossil fuels. The recently-published Legg Mason Global Investment Survey 2018 found that 70 per cent of Millennials would choose to invest in sustainable companies rather than non-sustainable ones, versus 21 per cent for the Baby Boomers generation.
How should private banks, advisors suggest that clients integrate ESG with the rest of their financial “balance sheet”, such as their spending habits, management of operating companies, philanthropy, etc?
We convey to our clients that demand is perhaps the strongest force for change, that everyone has a part to play in developing a more sustainable system, and that every financial decision should be made considering its effect on society and the environment.
We recognise that sustainability drives our own corporate performance in the same way that it does for the companies we invest in. It is incumbent on us and the industry to lead our clients by example.