ESG: Gaining an edge through digital change

ESG is currently a hot topic in wealth management with client demand and mitigating risk as the main drivers for firms.
A recent PwC report highlights that within the next 5 years, ESG assets will reach 50% of total assets, and a massive 77% of respondents told PwC they intend to stop investing in ‘traditional non-ESG compliant products’ within the next two years. Currently, the latest figures from the Investment Association show that almost half of all new net money in funds went into ESG funds (Jan-Oct 2020).

Clients see ESG as a real differentiator. Indeed according to Compeer’s wealth management end client research, 60% of clients would consider firms offering ESG investments highly vs others. This is also mirrored in other research such as by Cerruli which suggests that more than 66% of millennials would actively choose a wealth manager based on ESG. Clients have increased their engagement with wealth managers during Covid (up by 55% according to Compeer), and at least a third of clients have identified the need for significant improvements in the digital offering they currently have. For example, clients would like to see on demand access to their portfolios as well as tailored reports showing the impact of their portfolios on ESG factors.

Firms expect some of the greatest areas of change to be around suitability, reporting and generally integrating ESG into a cohesive risk management framework including portfolio rebalancing and monitoring. These changes will not only impact the client experience but will also play a critical part in ensuring that portfolios adhere to client suitability. For example, investment managers will be able to manage risk effectively and act on alerts such as changes in ESG momentum and rebalance accordingly. All these areas will rely heavily on digital solutions that will need to be fully integrated to ensure efficient processes and the best client outcomes.

Wealth management firms are at various stages in terms of readiness. At the end of 2020, 46% of UK Wealth Management firms still did not have a detailed plan on how they were going to tackle ESG (Synpulse C level research 2020). At the same time, the majority of firms (70%) are reviewing their digital transformation plans currently and/or planning to do so over the coming 24 months. Covid has caused an acceleration in the pace of digital change and firms are looking to see how digital solutions can help them deliver ESG to their clients.

To hear more about how wealth management firms are tackling ESG, join Objectway & Parkwell’s Webinar “Are you ready for ESG” on 25th Feb

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