As investors are becoming increasingly interested in ESG, you have to be prepared to deliver compliant, sustainable investment strategies that meet their evolving value-based demands.
ESG: THE RISKS, REWARDS AND REALITIES
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LET’S SOLVE SUSTAINABLE INVESTING
With investors holding your feet to the fire, you need to clarify what you stand for and make sure your actions back it up.
But to convince potential investors and regulators, you’ll need to show the evidence behind your ESG assessment.
• Think about your carbon footprint and energy efficiency.
• Are you encouraging workplace diversity, equality and community support?
• Consider the way you operate in terms of leadership, executive pay, audits, internal controls and shareholder rights.
ASSESS YOUR OWN SUSTAINABILITY
Millennials, who are now inheriting wealth by the trillions, contributed $51B to ESG funds last year. They care about good returns, but environmental, social and governance issues are just as important.
Moreover, they aren’t going to invest in just any ESG fund – they want to know that their hedge fund manager is ESG-compliant too. If you want to claim your share of those trillions, you need to both evaluate your own practices and understand what a sustainable investment strategy looks like.
UNDERSTAND THE NEW BREED OF INVESTOR
ESG investors know that positive change doesn’t happen overnight; they’re in it for the long haul. They believe the real reward is progress toward the causes they believe in. However, they’re also investing in the market to make money, so you can’t sacrifice returns.
The good news is that past performance suggests that you’ll likely generate returns that are just as high if not higher. And you’ll have a client that’s stickier than those just seeking a quick return.
RETHINK THE CONCEPT OF REWARDS
Sustainable investing isn’t just like adding a new asset class – there are a lot more considerations, including adopting the right strategy for your investors, such as:
• Exclusions – removing securities or sectors from consideration
• ESG integration – explicitly incorporating ESG data into investment decisions
• Impact investing – generates measurable positive ESG impact
You’ll need leading-edge data management tools to comb through all the facts and figures being generated from disparate sources, including ones you may never have analyzed before, like social media.
That’s virtually impossible for any human being, as well as being prohibitively time consuming, expensive and open to misinterpretation. Technologies like machine learning and artificial intelligence, plus new data-driven methods, can rapidly digest this unconventional information and apply it to traditional financial metrics.
KNOW YOUR SUSTAINABLE INVESTMENT STRATEGY
The investment community is working its way toward best practices and reliable measures of success. But technology plays a critical role in your ability to quickly build a sustainable investment strategy.
Look for a strong technology partner that has ESG expertise as well as solid relationships with analysts, regulators, data providers and other thought leaders. By forming that relationship now, you’ll be in a better position to leverage advanced technology and apply the latest innovations so you can deliver on your clients’ values and grow your AUM.
CHOOSE THE RIGHT PARTNER
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Understand sustainable investing and you can strengthen your ability to compete – and grow your business.
Integrating sustainable investing into your strategy has become essential. To allow you to focus on the best approach, you need a partner that will deliver on your technology and servicing requirements.
A partner that has the expertise and technical capabilities to evolve with you, your investors’ demands and regulatory constraints will enable you to reap the rewards and navigate the risks as sustainable investing continues to grow.
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81%
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36%
of the total population
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of millennials are interested in sustainable investing
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%
Source: Morgan Stanley, Sustainable Signals, New Data from the Individual Investor, 2019
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Scott Alintoff, senior vice president and group executive for Product Management, FIS
It starts with leadership. Educate and motivate your workforce to embrace sustainability so it becomes woven into your firm’s DNA. Proudly disclose it, then proclaim it in your CEO messages, mission statement, website, sales communications – everywhere. If it’s real, it will be believable.
Richard Peterson, senior product manager and director for Credit Data and Analytics, FIS
Trevor Headley, vice president and product management executive for Hedge Funds, FIS
Asset managers who learn to utilize ESG information can enhance their portfolio returns, better manage risk and increase their firm’s enterprise value.
Over the next 20 years, 64% of asset owners expect that ESG integration will be positively associated with hedge fund outperformance.
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Source: Hedge Funds Lag Behind Peers on ESG Investment Factors – Bifinance, IPE, April 2021
