Wealth Management Businesses Can Have A Major Impact On The Environment
Wealth management companies should care about sustainability and do their part to address the risk of climate change. They should make their own operation sustainable and collaborate with their clients to invest in sustainable companies. With the permission of their clients, wealth managers can direct investments into more sustainable companies while meeting the investment objectives of their clients. This article discusses how wealth management companies can have a large impact on the planet and society while improving their returns.
Start Internally: How To Make Your Offices More Sustainable
If you are committed to having your business become more sustainable and lower its carbon footprint, start with the green business basics. Here are some simple sustainability tips:
- Power Down – Make sure computers are powered down when not in use and use energy efficient settings to reduce electricity consumption.
- Use Eco-Friendly Buildings – If possible, choose an LEED Certified building for your office space. LEED certification ensures that everything within the building, from how much energy is used to the materials used to build it, are environmentally friendly and sustainable.
- Upgrade to Efficient Equipment – Upgrading your plumbing and HVAC systems to more efficient models saves on electricity and water consumption, and lowers your company’s energy and utility bills. If upgrading isn’t an option, then schedule routine maintenance to ensure your building is operating at its best.
- Recycle – Something as simple as installing recycling bins around the office will remind employees to think twice before throwing out their plastic coffee cups. Be sure that bins are in the most convenient locations (i.e. at a common gathering place or in the breakroom) and include signage that explains which items can and cannot be recycled (You may need to contact your local collection facility to confirm this information).
- Go Virtual – Allowing employees the option to work remotely greatly reduces commute emissions and helps cut energy consumption within the office building.
- Be Generous – Contribute to causes and charities that align with your company’s mission and values. Giving back is not only a good look for your company but it makes your current employees proud to work for you and attracts other passion driven individuals. Supporting a cause can also be an opportunity for employee engagement and team building. This could be a food drive, a beach or park cleanup, a charity walk, etc.
- Green Certify Your Business – Earning your green business certification via a credible third-party is a great way to validate your commitment to sustainability and combat greenwashing. It’s a chance to elevate your brand and improve your reputation as an industry leader.
Benefits of Investing in Sustainable Companies
As we’ve discussed, working towards becoming a sustainable business supports the planet and people, but influencing your clients and investors to make sustainability their priority too will have an even bigger impact. Here are just a few of the benefits of investing in companies that have a high sustainability rating.
Investing in sustainable companies provides a better return
Investing in sustainable companies has proven to be more profitable than investing in companies which are not. The leading exchange traded funds ESGU and ESGV, by Blackrock’s iShares and Vanguard respectively, have outperformed the S&P 500 over the last several years.
The three year annualized return for ESGU is 21.35%; 21.92% for ESGV, and 20.57% for SPY, a popular S&P 500 ETF. These funds avoid companies involved in controversial weapons, nuclear weapons, civilian firearms, tobacco, UN global compact violators, thermal coal, and oil sands. If ESG funds continue to outperform the market, then wealth managers who use sustainable investing strategies will have a competitive advantage over their rival firms.
Investing in sustainable companies will elevate your brand and improve your reputation
People are cautious when it comes to choosing the right person to help manage their wealth. If the vetting process is not done correctly, someone could have their life savings put in the hands of a person acting in their own self interest and not the interests of the client.
By investing in sustainable companies, wealth managers can show prospective clients that they care about the greater good and the wellbeing of future generations. Investing in sustainable companies shows a level of ethics and social responsibility that is beyond that of their competitors. This elevates the firm’s brand and reputation and will help in growing and retaining client networks.
Investing in sustainable companies is an investment in protecting the planet
By investing in companies with low carbon footprints and ethical business practices, wealth managers can have a major impact on the future economy and the environment. This is capitalism’s solution towards mitigating climate change. The free market, driven by powerful investors like wealth managers, can dictate which companies survive and prosper, and which companies need to end or make massive changes to their business model. The power that comes with controlling capital can instruct positive changes in businesses and ultimately lead to protecting the planet.
How To Find Sustainable Companies and Investments
As an investor committed to sustainability, you need to find companies that are verified as a legitimate sustainable business. ESG (Environmental, Social, Governance) ratings from trusted third parties can provide you with this information.
An ESG score is the primary indicator of a company’s commitment to environmental and social issues. MSCI is currently the most notable firm which develops ESG scores but Bloomberg, FTSE Russel, Morningstar, and S&P Global are also actively producing scores.
MSCI uses the following framework to develop scores (AAA, AA, A, BBB, BB, B, CCC) similar to a credit rating agency.
MSCI ESG Key Issue Framework. Source.
Wealth managers should be able to service clients who prefer to invest in sustainable companies
Wealth managers need to adapt their investment strategies to better suit their clients needs and beliefs. A recent poll by Kiplinger’s personal finance shows that of those surveyed, 25% saw ESG investing as a good way to diversify and reduce market risk; 21% saw it as a benefit because they wanted their investments to reflect their values; and 13% saw it as a benefit because it would produce better returns than non-ESG investments. In the poll, only 16% of those surveyed saw no benefit to ESG investing.
In order to remain competitive, wealth managers must be able to offer their clients ESG investing strategies if that is what they want. They could lose a fifth of their business on their clients moral values alone.
Sustainable Wealth Management Is Good For the Environment and Good For Business
In conclusion, wealth management companies need to improve their internal sustainability performance (run greener office spaces) AND invest in sustainable companies in order to have the greatest positive impact on the environment.
If pursued with consistency and credibility (via third-party certification), wealth managers will see higher returns on their investments, as sustainable companies outperform non-sustainable companies. They will attract more clients and grow their business, as people are more likely to put their trust in a wealth management firm committed to sustainability. Finally, wealth managers will truly have a positive impact on the environment – something that everyone should feel good about.
