In mid-September Eurosif published its “High Net Worth Individuals and Responsible Investment” study, which examined how families engage in sustainable investment. As part of the study, Eurosif partnered with Global Partnership Family Offices to conduct a European-wide survey to assess interest from family offices.
The study, which was a follow-up to Eurosif’s 2008 edition, examines the sustainable investment strategies used by families in their asset allocations. It also looks at the extent to which they integrate environmental, social and governance (ESG) issues into their investment decision-making and ownership practices.
Based on a survey of wealth managers and family offices and additional research, Eurosif estimates the 2010 European HNWI sustainable investment market to be approximately 1729 billion, representing approximately 11% of European families’ portfolios. This is a growth rate of 35% over the two-year period since the data was previously collected.
We predict that by 2013, the share of sustainable investments in families’ portfolios will have increased to 15%. Extrapolating on projected wealth of European HNWIs 18 trillion), this means the European HNWI sustainable investment market will be just below the €1.2 trillion mark in three years time.
A key finding from the study is that sustainable investment is now largely perceived by European families as a financial discipline rather than an investment style. Specific knowledge of ESG (environmental, social and corporate governance) issues are deemed necessary in order to be successful. This growing perception of sustainable investing as a financial discipline may help explain why the market is growing even during a difficult period in the financial markets.
Sustainable investment is clearly no longer seen as an alternative to philanthropy with less than 10% of European families stating they are filling a philanthropic need when investing sustainably.
The motivating factors behind HNWI interests in sustainability as an investment focus vary in relation to the origin of their wealth. Our research indicates that the inclination towards sustainable investment from inherited wealth stems from a wider sense of responsibility towards society, while the entrepreneurial wealth band seeks sustainable investments as a means to foster and develop a green economy. Both wealth bands share a belief this form of investment does not sacrifice financial returns.
Another important finding is the share of sustainable investment products in portfolios. Confirming the trend revealed by the 2008 edition of the study, once families begin to invest in sustainability offerings, ‘toe-dipping’, they tend to dedicate increasing portions of their portfolios to the SRI field.
The sustainable investment strategies most employed include thematic investing, screening and community investing among others.
According to our research, family offices tend to internalise the expertise on sustainable investment, while wealth managers tend to source their sustainable investments externally.
Families have benefitted over the past few years from greater media coverage of the sector and increased visibility of sustainable investments products. They are increasingly gathering and interpreting the information themselves. As a result, families tend to have a more comprehensive view on the various sustainable investment options at their disposal and are potentially less likely to engage in superfluous tailor-made services.
Looking at the two categories of respondents (wealth managers and family offices) separately reveals that the perceptions differ between the two segments.
Financial opportunity is clearly the main driver for HNWIs and family offices, while a majority of wealth managers perceive that responsibility is the main motivation for HNWIs to partake in sustainable investment. For both it would seem that sustainable investments now represent more of a financial opportunity than in 2008. As one wealth manager puts it, ‘the current market environment favours the shift towards sustainability.’
In any fund management offering, performance is always going to be a critical factor. In the Eurosif Survey, wealth managers highlighted performance as the first hurdle they need to overcome with clients, followed by risk-concerns and mistrust. The study also shows families are interested in successful track records and good business cases.
The future of HWNIs and sustainable investments is encouraging, with almost 90% of the survey’s respondents predicting interest for sustainable investment will increase in the next year. In addition, 78% of family offices assert that sustainable investment will increase in the generational transfer of their office’s wealth.
The financial crisis is clearly seen as a chance to start anew on sounder investment bases, for which sustainable products are decisive. An overwhelming majority of respondents believe the crisis will have had a positive impact on sustainable investment.
Still,there are a few points to be addressed in order for sustainable investments to reach their next stage of growth among HNWIs:
• A clear understanding of families’ motives to demand sustainable investment,
in order to develop or find the proper financial products that share and reflect their concerns;
• Wealth managers need to develop a track record and case examples of market rate performance to convince HNWI clients that sustainable investment can perform as well as other traditional investments;
• Information and education on sustainable investment should be provided to the wealth management community;
• A continued backing from the top management of wealth management companies and family offices is also essential to give credibility to the concept, both internally and to HNWI clients.
