BCG highlights price of wealth manager sustainability, challenges

Unsurprisingly, sustainability issues are covered in depth in the Boston Consulting Group’s annual overview of trends in wealth management. Here are some thoughts.

Digging into the details of the Boston Consulting Group’s Wealth Management Report (see here for a primary account), it reminded me how important the “sustainability” agenda – and opportunity – is in the wealth management. The report also contains expert advice on how businesses can get the most out of it.

Sustainable investing, much of which incorporates a “net zero” carbon emissions policy, is growing three to five times faster than traditional investing, the Boston Consulting Group said in its report. World Wealth 2022study.

“By 2026, we expect this asset class to represent 8% to 17% of invested private wealth, up from 4% to 11% today,” the report said.

In recent years, the sound of drums has increased due to concerns about human-caused global warming, rising sea levels, loss of species and increasingly unstable weather patterns. . However, it is still difficult and sometimes controversial to predict the negative financial and commercial impact of such results.

Despite all that the field isn’t as “established,” perhaps, as some ESG advocates claim (nuclear power is a no-go area for some activists), the trend seems unstoppable in modern finance. . The Boston Consulting Group said wealth managers cannot try to achieve net zero on a “piecemeal” basis.

“The competitive bar for net zero excellence is likely to rise rapidly. Leaders must anticipate how the market will evolve over the next decade and set a bold aspiration leading to long-term strategic advantage, as decide whether to make certain net zero investments a default offering. They also need to establish one set of portfolio and revenue goals for 2026 and another more ambitious set for 2030,” the report’s authors said. can even begin to calculate their portfolio’s overall emissions and assess their likely trajectory based on anticipated client behavior and changes in WM’s solution offering.”

Wealth managers need to be clear about what terms such as sustainable and responsible investing mean, the report continues. And that is surely critical.

The report says firms and advisors should use net zero goals to shape portfolio construction, develop offerings and measure impact. They can help clients translate their values ​​into specific data-driven targets. One example could be accelerating the transition to net zero by helping to bridge the $15 trillion in financing needed to scale alternative decarbonization, the report says.

It seems like common sense. What BCG also makes clear is that impact measurement requires modern technology to analyze all the data and turn it into forms that end customers can digest. To some extent, too, it aligns with the never-ending wealth management topic of delivering an exceptional client experience. The more effectively companies can communicate with their customers about how their investments are making a difference – and also generating returns – the more loyal customers will be.

BCG said innovation is key. “As customers become increasingly interested in net zero, vanilla products will not be enough to attract them. For example, a WM could speak to a client about how climate transition efforts are driving innovations in alternative fuel sources for the aviation industry and bringing associated investment opportunities that meet the client’s portfolio criteria” , did he declare.

There’s a lot to think about here, and BCG seems to hit a number of sore spots. Clearly, one of the main reasons for the history of sustainability in wealth management is that companies know it’s a treat for younger clients (how well it continues to do so will depend on how long during which energy prices will be high, however). Billions of dollars are up for grabs as the silent generation and baby boomers disappear. Being sustainable also helps companies improve their image just a decade after the stock market crash of 2008.

What the BCG report fails to reflect is how viable net zero is as a policy goal (to be fair, that’s not its mandate). Not everyone is “online”. At the end of May, HSBC suspended Stuart Kirk, global head of responsible investment, after he told a conference in Davos that central bankers had exaggerated climate risks in a bid to “overtake the next one”. (HSBC chief executive Noel Quinn reportedly said Kirk’s views did not reflect those of the bank.) In addition, controversies over “greenwashing” investments have erupted, drawing the attention of regulators.

The HSBC kerfuffle shows that these are not easy problems. Russia’s invasion of Ukraine, which, coupled with pandemic-related disruptions, some countries’ anti-carbon energy policies, and even central bank money printing, has driven up the costs of l ‘energy. Can solar and wind fill a void unless massive, reliable battery storage becomes a reality? There is also the question of where the batteries are made. One of the biggest producers of lithium – used in modern batteries – is China. Russia produces about 11% of the world’s high quality nickel, another important component of this technology (source: Forbes).

Some of these considerations are outside the scope of the BCG report, and whatever wealth managers think about the issues, they need to be on the sustainability train and be seen to be so. It may not always be a comfortable ride, but if Boston Consulting Group is right, it will pay off.

Dolores W. Simon