Sustainability: an increasingly important consideration for wealth management

Nicolas, what is the purpose of your role?

Essentially, my role is to make sustainability an integral part of our investment analysis, advice and decisions. Environmental and social challenges are changing the playing field for investors, creating risks where companies are not transitioning, and equally opportunities where businesses choose to embrace the change. It’s our job as wealth managers to detect, understand and manage these new risks and opportunities, in order to build robust, better- performing portfolios.

Sustainable finance regulation is on the rise. Do you see this as a help or a hindrance in terms of your ability to advance the topic internally among client-facing employees and externally among clients?

There’s no doubt that regulation is playing an important role in putting sustainability issues on the agenda for banks, and that regulation creates accountability for banks, which must act on it within a certain timeframe. The stakes are too high to rely on voluntary action alone. Regulation is also critical for increasing transparency on what banks are doing, and for lowering the risk of greenwashing.

However, one key challenge I see at the moment is that existing and forthcoming regulations are not always very clear, which means that banks are spending a lot of time and resources on figuring out what to do and how to do it. If you add in the greater reporting and disclosure requirements, this means that much of our time and resources are tied up in understanding and meeting the various regulatory requirements, time and resources we could be spending on ESG analysis, work on developing sustainable investment solutions and more client engagement on this topic.

So whilst regulation plays a critical role, there is room for improvement to make sure that it actually serves the ultimate purpose of aligning financial flows with the needs of the transition, rather than working against it.

The noise around sustainable finance from the media and regulators seems to be out of step with client interest, which is still fairly limited. What is behind this disconnect and how do you see it evolving?

As global challenges like climate change, biodiversity loss, pollution and social inequality intensify and accelerate, they are naturally catching the attention of the media and of course regulators, which are looking for solutions.

But it’s true that client interest is lagging behind. One key issue is that many clients – and bankers – see sustainability only in terms of exclusion lists and impact investing, which misses the main point: the transitioners. Making sustainability an integral part of investment analysis is key in terms of managing risks related to companies that are not transitioning and therefore constitute stranded asset risks, as well as those which are transitioning and thus present investment opportunities. If we make it clear how integrating sustainability into investment decisions could lead to more robust portfolios, this can be very compelling for clients.

It’s our job as wealth managers to detect, understand and manage sustainability risks and opportunities, in order to build robust, better-performing portfolios.

Sustainable investment products have performed poorly in recent times. How does this affect the investment case for sustainable solutions?

It’s true that recent returns have been rather disappointing for sustainable products, mainly because of the difficult geopolitical context and interest- rate environment. But we have to bear in mind that the performance history of existing sustainable products has been quite short, and that sustainable investing requires a longer-term view. Sustainability challenges are not going to disappear. On the contrary, they are becoming decisive and inescapable factors for future economic growth. Scientific findings call for a rapid transition in production and consumption patterns to reduce global pressure on nature, while meeting the needs of a growing population that aspires to improve its standard of living. This will remain the reality in the coming years and decades, and does not leave much room for other scenarios. A continuous weakening of the ecosystems on which most of our economic activities are based would lead to weaker economic performance and increased risk.

What are your top three priorities for the next two years?

1. Ensuring that our information systems can detect transition opportunities as they materialise. All sectors will evolve at different rates, so it will be a question of allocating capital at the right time to solutions that have a chance of being deployed on a meaningful scale.
2. Instilling the desire within our teams of advisors and bankers to talk to our clients about sustainability from a positive and entrepreneurial point of view, and not from a moralistic or negative point of view.
3. And, of course, launching a dedicated sustainability offering. I want to build on the groundwork we did last year and put into place both managed strategies and an advisory service that has sustainability at its core.