Responsible Investing Is Sweeping the Investment Industry – Fund Management/ REITs

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It’s no exaggeration to say that responsible investing is sweeping the investment industry. A new generation of investors is expressing their desire for investment pathways and philanthropy that represent the most sane, informed, and mature mindset for achieving long-term returns.

Contents

  1. A generational preference for ESG reflects long-term thinking and an emphasis on results

  2. A step change in fund management and investment decision-making

  3. Affluent Families Want Satisfying Investments, Not “Satisfying” Investments

A generational preference for ESG reflects long-term thinking and an emphasis on results

It’s no exaggeration to say that responsible investing is sweeping the investment industry.

In a way, it’s just a reflection of a changing world. Greta Thunberg, the young Swedish activist, is a vivid example of a generation’s growing impatience with empty promises, signs of virtue and inaction. During her appearance before the US Congress, she implored them not to “listen to her”. She asked them to listen to the experts – the scientists – and to act on this information.

A new generation of investors are expressing similar concerns and making similar demands about how they want to see their money invested, their wealth grow, and the impact this can have for positive change. This requires further responses from their investment advisors and trustees, especially for proof of real impact.

The emerging wave of investors want investment and philanthropy pathways that represent the most sane, informed, and mature mindset for achieving long-term returns. As much as this illustrates an awakening of social conscience, it is a return to fundamentals and best investment practices.

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A step change in fund management and investment decision-making

The responsible investment model that dominated before was that of avoidance. A fund could simply exclude any investment in tobacco, weapons, fossil fuels or other ‘bad actors’ – and call itself an ‘ethical choice’. Little attention seemed necessary to the rest of the portfolio, or whether the immaculate fund was having a positive effect on the world.

ESG investing takes into account a company’s impact on the environment, but also the people it employs and its community. In recent years, there has been no shortage of stories of companies causing long-term harm to society or the environment, and these are increasingly reaching the public. Corporate crises such as the BP oil spill or the Olympus accounting scandal illustrate how ignoring the “ESG factor” can affect a company’s share price and investment portfolios.

Analyzing companies for their ESG credentials also provides a way to understand their thinking on long-term profitability and growth. Numerous studies have shown that ESG investing improves downside protection while enhancing upside potential, a win-win situation for any investor.

That said, there is a substantial difference between ESG-badged products introduced by mainstream houses and a more bespoke approach offered by a wealth manager or family office. The younger generation’s focus on evidence and impact means advisors at all levels must be prepared to be questioned to see if they are offering a product that truly meets their objectives.

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Wealthy families want satisfying and unsatisfying investments

The change we are seeing is taking place not only among large fund management groups, but also among high net worth investors and those who support them. The desire to make a difference is fueling the rise of impact investing and the professionalization of philanthropic strategies. As with ESG, the motivation is to invest for good and encourage organizations to drive change.

Recently, Hawksford was working with a client with a background in medicine. This person was motivated by the desire to achieve a substantial difference from the problems they had observed firsthand. This was not a sophisticated investor, but a deeply intelligent and passionate person who would not just offer money unsupervised.

Charities are willing to donate into existing processes, but rarely have the time or ability to step back and consider broader reform. Increasingly, impact investors are looking for board involvement and ongoing governance to ensure meaningful change takes place.

Along with his medically trained philanthropist, Hawksford helped develop a governance structure that ensured proper guidance on tax matters and a continued focus on responsible investment decisions so the client could apply his insights to achieve results.

The real reward of philanthropy has less to do with the donor’s ego than with having left a better world. This is a particularly strong trend among wealthy individuals whose fortunes have been made over the past few decades: especially among tech entrepreneurs. Many have drawn on a passion for problem solving and data to build their fortunes – why shouldn’t they apply this discipline to their philanthropy as well?

At Hawksford, we can see the impact of impact investing across the entire investment ecosystem: from wealth administration and governance to fund investor decisions and family offices. and individual HNWs whose giving is measured in billions, not millions. We are evolving the support we provide to better meet the demands of a generation that wants more data and engagement in the investment process, as well as a deep understanding of end organizations and proof of results.

This should not be considered revolutionary. In practice, it is simply an opportunity to fulfill the first and most important duty of a fiduciary: to ensure that the trust is conducted fully and properly for the benefit of those for whom it is intended.

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The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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