n 1971, the German business professor Klaus Schwab brought leading executives from Western Europe to a small town in the Swiss Alps. Schwab asked these corporate leaders to consider the impact of their businesses on all of their stakeholders – not just customers and investors, but the societies within their sphere of influence. This ethos of responsibility would form the foundations of a new non-governmental organisation committed to economic and social betterment: the World Economic Forum.
There is a growing understanding that wealthy individuals can meet their financial goals while also safeguarding the planet for future generations
Since that first meeting in Davos almost five decades ago, the need for corporations, governments and society at large to take responsibility has only grown. The World Bank estimates that $4trn worth of investment is needed every year to achieve the UN’s Sustainable Development Goals (SDGs) by 2030. With current annual funding from multilateral organisations amounting to just $1trn, the continued contribution of the world’s wealthiest people is more crucial than ever.
The urgency of global issues has challenged high-net-worth individuals (HNWIs) to consider how they can leave a legacy greater than just financial security to the next generation. It is the responsibility of their advisors to support them in doing so.
The new face of wealth
Finally, the misconception that responsible investments don’t bring high returns is being broken down. There is a growing understanding that wealthy individuals can meet their financial goals while also safeguarding the planet for future generations. August 2019 data from Morningstar showed that 73 percent of funds in its environmental, social and governance (ESG) index outperformed equivalent non-ESG funds over the past three years. This has led to HNWIs increasingly deploying capital to responsible investment opportunities – funds that preserve and grow their financial assets, and build a sustainable future.
This has contributed to the soaring popularity of sustainable investing in recent years. According to research carried out by UBS, 34 percent of family offices globally are already engaged in sustainable investing, and a further 25 percent are engaged in impact investing. Of the latter, 62 percent are focused on fighting climate change. Further, a Standard Chartered Private Bank survey showed that 84 percent of HNWIs were open to shifting their funds from philanthropy to sustainable investing.
Another major driver of ESG integration is the shifting high-net-worth demographic, with more women and Millennials joining the group than ever before. These groups are highly attuned to the broader social and environmental impact their investments have.