Managing Wealth With Impact
#SRI — 28.01.2020

Managing Wealth With Impact

Investment Theme 2 | BNP PARIBAS WEALTH MANAGEMENT

The interest in sustainable investments continues to increase.  According to the recent BNP Paribas Global Entrepreneur Report, the interest of entrepreneurs for opportunities that reconcile their investments with their values – including impact finance - has never been higher.  As of 2020, c. 70% of entrepreneurs are interested in exploring investments presenting a real sustainability or impact objective, and c. 46% have already done so.

IMPACT INVESTING, SOCIALLY RESPONSIBLE INVESTMENTS

Nevertheless, at the same time interest for impact investing, socially responsible investments or sustainable product grows for wealthy individuals, the portion of their overall portfolios actually invested in these assets has dropped to c. 4%.

The dissonance between the interest and the actual act of investment is explained in part by the perception that sustainable and impact investments require some sacrifice in terms of returns. Socially Responsible Investing refers to the application of sustainable development principles to financial investments.  In addition to financial performance, this form of investing aims to support activities with a strong social and/or environmental value.  For some investors, such restriction of the possible investment universe could reduce the choices available and thus the restriction is perceived as having a potential negative impact on portfolio return.

A FULL SWITCH IN MENTALITY

Furthermore, as illustrated in a recent BCG study. in 2019, highlighting the opportunities of sustainable investments, significant “barriers to entry” are still slowing a full switch in mentality toward ESG and Impact investments.  Amongst others, the issues identified relate to the complexity of the ESG market, with a lack of standardized data, lack of information outside of the listed equity asset class, or the difficulty in defining a clear strategy for the inclusion of ESG criteria, especially when there is still a lack of expertise in the sector.

A recent report from the IMF, published in October 2019, highlighted similar issues.  While the report highlighted the fact that there was no basis for thinking that impact investment portfolios would deliver lower returns than traditional portfolios without exclusions, it also illustrated the complexity of the field and the need for greater transparency and standardization to help investors understand better impact investments, sustainable investments and ESG investments.

In that context, one of the key roles of private bankers is to bring the right level of expertise in advising their clients about how to seize the opportunities brought by sustainable and impact investments, helping clients navigate what is a rapidly evolving but still complex ecosystem.

A recent article from PWM mentioned the need for banks to remain relevant for their clients, especially for a new generation of entrepreneurs and investors.  To remain relevant and keep in touch with the aspirations of entrepreneurs and families that are eager to align their investments with their values, some forward-thinking innovations have recently seen the light of day.

MYIMPACT

One of such innovation has been BNP Paribas Wealth Management’s release of an innovative digital tool, “myImpact”, co-created with clients and focused solely on helping clients to understand better their own impact and philanthropic profile.  Through this digital tool, wealth management clients gain a better understanding of their own preferences, which then serves as a framework to design a fully customized investment strategy.  Such framework can for example enable investments in certain Socially Responsible Investing funds identified to match the client’s values.

Innovations like myImpact have deep ramifications for clients and for their financial provider. Setting out to simplify hesitance of the world of sustainable and impact investment, digital solutions of this kind will slowly align standardization of data and thus foster transparency and ultimately adoption by clients.

In a world that requires a strong switch toward sustainable investment in order to align with global ambitions to fight Global Warming, investors have a key role to play.  The most innovative private banks are helping their clients to achieve their goals through innovation and expertise, and myImpact is a key step in the right direction.