Global wealth management firm Canaccord Genuity Wealth Management, with GBP25 billion under management, has launched an ESG version of its traditional discretionary multi-manager portfolio, using iShares sustainable ETF building blocks.
Patrick Thomas, investment manager, at Canaccord Genuity explains that the move came on the back of a combination of investment reasons and client demand.
“We thought that an ESG overlay was a perfectly valid investment strategy in its own right,” Thomas says. “And, we had a lot more client demand particularly from slightly younger investors and charity and trustee clients too.”
Cost was an issue and Canaccord is a keen user of ETFs, so enter, centre stage, iShares with its range of ESG ETFs.
Joe Parkin, head of iShares UK Sales at BlackRock, explains: “We continue to see clients looking to evolve their portfolios through taking more granular exposure by using sectors and factors to align their portfolios with their beliefs, which is where ESG comes in..”
iShares’ sustainable investing range offers investors a broad spectrum of ETFs including: ESG Screens; ESG Integration; Socially Responsible Investing (SRI); Thematic ETFs and Impact investing.
Thomas reports that the official launch of the ESG products was in April 2018 and, so far, the funds have raised GBP32 million.
“That’s quite a lot in a market that has been tricky,” Thomas says. “It’s quite different for us as a discretionary manager as we are asked to present to people but relatively few people are doing it so the response is good.”
Thomas also reports that investors are starting to change, with clients who have accumulated money through a more traditional strategy converting their portfolios to incorporate ESG filters. “People are converting in a number of different ways with either a percentage of their portfolio doing this or some who want to take it to the next level and look at impact and stuff like that.”
While the data reports ESG investment is most important for women and millennials, anecdotally, Thomas believes it is wider than that. Clients are usually over 30 but the age range is now quite high and, of course, includes anyone who has a reputational reason to be concerned about the companies in which they invest.
Parkin says: “It is the number one conversation across Europe with clients and it is happening quicker than anyone thought it would. The long term view of this, or even the medium, is that ESG will be integrated into every investment decision – it’s here to stay.”
The old question of whether adopting ESG filters would have a deleterious effect on performance has pretty much been put to bed, but now there is a new belief that it can actually add to performance, with the ‘G’ – good governance – having its beneficial effect.
Thomas says that Canaccord Genuity never approached ESG investing with the view that it would always add to performance and warns that the fund industry needs to be careful on claims that it adds to performance as the data on that is not clear.
“Some of the fund launches are doing it in the right way and others are jumping on the bandwagon a bit,” Thomas says. “It needs to be handled with care because over shorter periods the performance data can look better.”
Parkin observes that people are moving their entire investment management firms over to ESG management, not just at the portfolio level. “The modern asset and wealth manager of the future cares about how they behave and what values they stand for,” he says.
Thomas agrees: “I echo that because if I look at what we have done over the past couple of months in all the investment committees and how we make decisions, we have formally incorporated ESG into our terms of reference for as many of the committees as it is appropriate to do so.”
“This is engaging more and more people to take responsibility for their investments as the State and the corporate steps away and passes responsibility for long term saving and investing to the individual,” Parkin says. “If these individuals can get more and more engaged, and ESG engages them in a way that they have never engaged before, it’s a great by-product.”
Thomas agrees, saying: “That re-engagement point is really important in the financial services world as it is a bit of an echo chamber. The average client doesn’t find trade wars and rate rises interesting at all. It’s dull and irrelevant, but this is something that will touch people’s lives, is more engaging and helps young people to save money.”
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