More and more, investors are looking to align investment objectives with their personal values. How the growth of values-based investing is reshaping the landscape of wealth management is explored in a new Black Diamond whitepaper: The Triple Bottom Line: The Future of Wealth Management is ESG Investing.
As the whitepaper spotlights and research further supports, environmental, social, and governance (ESG) investing has proven to attract, retain and serve the needs of today’s investors, while also contributing to the overall sustainability of the planet for future generations. Surveys confirm that investors are increasingly interested in sustainability, especially the millennial generation – 95% of whom have said they want to tailor their investments to their values[1].
Unsurprisingly, wealth managers are rapidly adopting ways to factor ESG into their decisions, not only to better align investors’ goals with their values, but also to help overall investment performance. The most forward-thinking mangers are positioning themselves to create a competitive advantage by leveraging technology to “tilt” portfolios towards sustainability, generate strong returns, and better differentiate their firms.
The Triple Bottom Line: The Future of Wealth Management is ESG Investing points out that as wealth managers seek to capitalize on the growing demand for ESG investment solutions, there are a number of perspectives and disciplines under consideration. Chief among them:
- Recognition of ESG as Alpha Seeking. Data from asset management start-up Arabesque found that S&P 500 companies that ranked in the top quintile for ESG factors outperformed those in the bottom quintile by more than 25 percentage points between the beginning of 2014 and the end of June 2018, while their stock prices were less volatile[2].
- ESG screens. Wealth managers may offer negative screening through managed accounts – a process that excludes certain categories of stocks from a portfolio.
- Transparency and reporting. Because investors want more transparency on the ESG characteristics of their investments, certain technology platforms can now provide detailed reporting and analysis on ESG factors.
- Direct indexing. Through advanced rebalancing technology, advisors can build ESG weighting into client portfolios.
While meeting investor demand and potentially delivering superior returns, firms that adopt effective ESG practices stand to reap additional business benefits. ESG investing can open an avenue of growth with priority clients—millennial and female investors.
Key to successful ESG integration is technology. Through its integration network, the Black Diamond® Wealth Platform enables advisors to expand ESG capabilities to the benefit of their clients. For example, SMArtX, a full-service, turnkey asset management platform (TAMP), is a key Black Diamond partner that offers access to a wide range of ESG strategies from leading fund managers. Another partner, leading technology platform Act Analytics allows advisors to download portfolios from Black Diamond into a comprehensive ESG analytical framework. This functionality equips advisors to compare and contrast portfolios with benchmarks from more than 200 ESG factors across 100,000 mutual funds and ETFs, and more than 20,000 publicly traded securities.
As environmental, social, and governance investing continues to take root, wealth managers must adapt to attract, retain and serve today’s investors. An ESG offering along with innovative technology can help you align your clients’ portfolios with their values, while also contributing to overall sustainability for future generations – a win, win, win for investors, advisors and the planet. For a comprehensive understanding, download the whitepaper today.
If you would like to learn more about how Black Diamond can help you successfully integrate ESG investing, today.
1 https://www.msci.com/documents/10199/07e7a7d3-59c3-4d0b-b0b5-029e8fd3974b
2 https://www.fool.com/investing/2019/05/22/does-esg-investing-produce-better-stock-returns.aspx
