This article explores how sustainable wealth management evolves through ESG investing, COP21 alignment & green pension strategies.
The concept of wealth management has evolved beyond traditional financial paradigms. Beyond pure financial gain, individuals and institutions are increasingly recognising the importance of aligning their wealth management strategies with sustainability goals. This shift towards a greener future is an ethical imperative and a strategic move recognising the interconnectedness of financial prosperity and environmental well-being, especially in global initiatives such as COP21 (Climate Change Conference).
Several countries are at the forefront of driving a green future in the investment world, actively prioritising sustainable and environmentally conscious practices.
At its core, wealth management is about carefully orchestrating financial resources to achieve long-term financial goals. In the wake of the COP21 agreement, which highlighted the urgent need for global cooperation to address climate change, the financial sector has recognised that sustainable investments can deliver both economic returns and a positive environmental impact. This intersection of asset management and sustainability has given rise to sustainable asset management.
Sustainable asset management integrates [environmental, social and governance (ESG)](https://www.techtarget.com/whatis/definition/environmental-social-and-governance-ESG#:~:text=Environmental%2C social and governance (ESG) is a framework used,various sustainability and ethical issues.) criteria into investment decisions. ESG scores, which evaluate a company's performance in these areas, have become a key metric for assessing the sustainability of investments, providing investors with a comprehensive view of how companies manage their impact on the planet, treat their employees and uphold governance standards.
Global pension assets amount to US$47.9 trillion. In the UK, this amount is over £2.6 trillion. While 68% of UK savers want their investments to consider the impact on people and the planet and financial performance, only £1 in every £10 is invested this way. Most interestingly, greening your pension is 21 times more effective than giving up flying, becoming a vegetarian and switching energy suppliers combined.
There are many definitions of green investing among investors. However various pension funds can be part of a fund with a climate strategy. The world's largest pension funds are responding to climate risks and opportunities. A study by Columbia University's School of International and Public Affairs, in collaboration with the World Bank and the Sustainable Finance Institute, analysed pension funds from Canada, Japan, the Netherlands, Norway and the United States in terms of their regulatory environment, climate investment strategies and quantitative climate targets and/or disclosures.
An Exchange-Traded Fund (ETF) is a financial instrument that combines the diversification of a mutual fund with the tradability of a stock. ETFs track the performance of a specific index, commodity, bond or basket of assets, allowing investors to buy and sell shares on exchanges throughout the trading day. ESG ETFs provide a specific focus on ESG growth and impact. In the ESG ETFs: A Trend or a Fad? Podcast, speakers express optimism about the long-term resilience and transformative power of ESG investing, despite challenges such as greenwashing.
The global ESG ETF market is worth over $400 billion. In 2022, 65% of total flows into European ETFs went into ESG products, while in 2021, the same was true for 53% of flows. This finding is also confirmed by Deborah Fuhr, Managing Partner at ETFGI, when she said, "ESG ETFs are more of a European phenomenon compared to the typical ETF landscape".
As we move into an era defined by environmental challenges and global initiatives such as COP21, the marriage of asset management, sustainability, and ESG scoring is emerging as a strategic imperative. Investors and asset managers alike recognise that the pursuit of financial prosperity need not come at the expense of our planet. Sustainable asset management that incorporates ESG scoring and aligns with the goals of COP21 is a way to build a greener, more resilient future.
The Amundi Research Center has researched the next stage of ESG development in the pension landscape. One of the key findings is that this is a changing ecosystem. While old-style capitalism focuses solely on profits, the ecosystem is being reshaped with the rise of ESG investing. 18% of the funds surveyed have already implemented a net zero strategy, while 43% are in the process. The survey also reveals the barriers to the process and how managers are selecting for this shift. 53% of funds expect the proportion of ESG investments in their active portfolios to increase.
By adopting sustainable investment practices, individuals and institutions can secure their financial future and make a meaningful contribution to the collective effort to address the pressing challenges of our time. According to Capital Group, only 13% of global investors see ESG as a fad that will eventually go out of fashion. So, in this era of conscious capitalism, integrating asset management, sustainability, ESG scoring, and global initiatives such as COP21 is not just a trend but a paradigm shift that holds the promise of a more sustainable and equitable global economy.
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