Sustainable Finance: adding another layer to advisory services

ABBL Published 21.09.2018

Align management of client wealth with client values

Luxembourg is the Eurozone’s premier international wealth management centre, serving clients, from several countries and continents, all with complex business and family profiles.

In these days, one trend is becoming more and more vocal and will without any doubt drive future changes in the wealth management industry: sustainable finance.

A growing number of clients is interested in knowing more about the impact of their investments (how their money is invested) then receiving red carpet treatments or a ticket for a fancy event.

The banking sector should soon be ready to support the transition to a more sustainable financial system by providing ways and tools that can be used by local and international clients to develop themselves in a sustainable way.

A major push is coming currently from the EU Commission and its action plan: besides the necessary taxonomy (there is a need for more clarity around the language used), the inclusion of ESG (environmental, social and governance) considerations in the provision of investment advice (e.g. amendment of Mifid II framework) represents an important step in the equation to unlock the growth potential of sustainable finance.

So, how sustainable finance could add another dimension to advisory services in the wealth management business?

“Did we beat the benchmark?” – This was perhaps the most extreme synthesis of the relation between the client and his client relationship manager in the past.

Today and even more tomorrow, for many clients the emphasis is and will be put on a more holistic financial approach other than just the return on the investment. Being able to successfully combine financial return with sustainable aspects will be the key for strong and lasting client relationships based on mutual trust.

With this in mind, broadening the dialogue with the client to include values, sustainability trends and ESG performance of firms, will allow the client relationship manager to personalise the relationship in order to provide more tailored solutions; in particular, let the client becoming more engaged about the positive impact of its wealth or be aware of the negative impact he could avoid.

 

 

The idea behind, it is not taking X% of the entire wealth to be allocated in a particular strategy, but instead, ingraining sustainability in a coherent way across the entire portfolio: this is a clear opportunity for banks to prove and justify the value of their services and fees, and therefore building strong client relationships over time.

Finally, sustainable finance will trigger a paradigm shift, if anticipated, being a major business catalyst and a door opener for a coming “generational wave”:  women and the young generation will control more wealth globally in the near future and, in addition, both of these groups have a higher predilection for sustainable finance.

In order to scale up this new “wave”, private banks need to invest in greater education of banking staff regarding the opportunities and risks associated to sustainable investments.

Concrete actions taken at Group’s level

  • BNP Paribas named World’s Best Bank for Sustainable Finance in 2018 according to Euromoney: “BNP Paribas has committed itself to sustainable finance in a way that is unmatched in the sector. By turning down deals and pulling out of sectors that are not sustainable, as well as driving new sustainable finance initiatives across all of its businesses.”
  • Credit Suisse established an Impact Advisory and Finance Department to explore projects and initiatives that have a positive social and economic impact;
  • UBS wealth management division is developing a range of new thematic and pooled impact investment products. It is a launching a new sustainable investing strategic asset allocation and is re-training client advisors;
  • Julius Baer is focusing on two areas of impact investing through funds and fixed income in its offering: microfinance solutions and green bonds;
  • Deutsche bank created Sustainability Council comprising senior managers from every business division at the bank, tasked with advising the management board on ESG issues;
  • Société Générale committed to strengthening sustainable finance solutions for its clients — from economic, social and environmental perspectives. In order to have a positive impact on society, Société Générale has been at the origin of the concept of ‘Positive Impact Finance’ which calls for a new financing paradigm, and is part of the United Nations Environment Finance Initiative (UNEP FI).

(It is not an exhaustive list).

If we combine the commitment of the Society with the commitment of our industry, the changes could happen fast.

 

By Fabio Mandorino, Adviser, Sustainable Finance, Private Banking, Commercial Banking

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