As Liechtenstein’s first institution to sign the UN Principles for Responsible Investing (PRI), at Kaiser Partner Privatbank we realise we have an important role to play in defining and promoting responsible investment. Responsible investment encourages active involvement from investors in shaping company culture by placing emphasis on environmental, social and governance (ESG) factors, taking into account the long-term stability of the market.
Investment of this kind recognises that the creation of long-term sustainable returns is dependent on stable, well-governed environmental and economic systems. It entails the incorporation of ESG issues, active ownership (in terms of engagement), commitment to transparency and constructive engagement with public policy. At Kaiser Partner Privatbank, we believe we are not only responsible for our own clients and financial practices; we have a duty to espouse the importance of responsible investment to the wider market as well.
Growing in popularity
Responsible investing is the next step in the evolution of traditional finance, as it focuses primarily on delivering competitive financial returns by mitigating the risks associated with ESG factors in order to protect value in the long-term. We see a few drivers have been accelerating this process; both public awareness and political pressure around the issue have significantly increased in recent times. Furthermore, recent research findings, as well as lessons from institutional investors already practising responsible investing, show this approach can be incorporated without overly limiting an individual’s investment options or how these options perform.
Responsible investment encourages active involvement from investors in shaping company culture by placing emphasis on environmental, social and governance factors
A new, more youthful demographic has also brought change. In terms of age, responsible investing is definitely favoured among the younger generations of our clients. We see most demand coming from Western Europe – but it is interesting to see how clients from emerging markets are increasingly interested in this approach. Regardless of demographics, the preference can also be seen as an evolution started by institutional investors and now shifting more and more towards private individuals.
The 2016 Global Sustainable Investment Review found approximately $23trn (out of a global total of $85trn) is being managed through investment strategies that incorporate environmental, social and governance considerations, an increase of 25 percent since 2014. This trend is ongoing and has major implications for any investors in capital and investment markets. In the years to come, responsible investment will represent a core aspect of any financial portfolio.
A sustainable future
Since signing the UN PRI more than 10 years ago, we have continued to incorporate ESG issues throughout our investment process. Today, we offer a holistic approach for sustainable investment solutions that involves enhancing client profiles by taking into account any sustainability preferences, and offering tailor-made solutions that are based on individual values. In this way, responsible investing needn’t be limiting at all; it can be surprisingly flexible and customised for each individual. We also carefully monitor our ESG practices with regards to controversies, impact measurement and business involvement to ensure we meet our high standards at all times.
While there is now a significant awareness about responsible investment on a broad basis, implementation still lacks depth. In our view, the translation from awareness to the incorporation of ESG within all aspects of client portfolios will intensify in the future.
We think the major shift will be less about the investment landscape itself and more about a holistic approach – something we are delivering for our clients already. It will not be enough to simply have a responsible investment offering. Increasingly, wealth management companies will start working with every client by adopting a value-based onboarding process to further raise awareness around sustainable investing and to learn the preferences of each client.
Additionally, reporting will be a key requirement as clients want (and need) to know if some portfolio holdings are involved in any controversies, what the carbon footprint of the portfolio is, and to what degree the portfolio contributes to achieving sustainable development goals. Although these approaches have been deployed at Kaiser Partner Privatbank for over a decade, there is still more we can do – beginning with ensuring the wider financial services industry is aware of the many benefits of responsible investment.