Exotic vacations and even more exotic automobiles might be a couple of things the world’s wealthiest individuals might splurge on, but there’s another thing—environmental, social, and governance (ESG) investing. More high net worth individuals are starting to pour investment capital into ESG.
“In Capgemini’s World Wealth Report 2020, more than a quarter (27%) of high net worth individuals (HNWIs) — those with investible assets of $1 million or more — said they were interested in sustainable products,” a CNBC report noted, saying that more of the world’s wealthy individuals are putting their capital towards ESG. “That figure rose to 40% among ultra-high net worth individuals (UHNWIs), those with $30 million or more to invest.”
“And, importantly, that interest is translating into action,” the report added. “Wealthy investors said they plan to allocate 41% of their portfolio to businesses actively pursuing environmental, social, and corporate governance (ESG) policies by the end of the year. By the end of 2021, that figure is set to rise to 46%.”
“As awareness on environmental issues increases and more mature products with better financial returns become available, the appetite for ESG products has increased,” said Shinichi Tonomura, managing director of Capgemini Financial Services for Asia and Japan.
Another noteworthy trend is the increase of millennials pouring capital into ESG investments. Moving forward, more investment products will need to be tailored to this new class of investor.
“It will be important for wealth management firms to keep in mind these unique needs and preferences of millennial investors when designing their ESG offerings for this segment,” said Tonomura.
ESG ETF Exposure
Investors who want ESG exposure via an ETF wrapper can take a look at the Xtrackers MSCI EAFE ESG Leaders Equity ETF (EASG). EASG seeks investment results that correspond generally to the performance of the MSCI EAFE ESG Leaders Index.
The fund will invest at least 80% of its total assets (but typically far more) in component securities (including depositary receipts in respect of such securities) of the underlying index. The underlying index is a capitalization-weighted index that provides exposure to companies with high ESG performance relative to their sector peers.
An additional fund to look at is the Xtrackers MSCI USA ESG Leaders Equity ETF (USSG), which has been a popular play for investors seeking exposure to socially responsible investments. USSG was developed in collaboration with Ilmarinen, Finland’s largest pension insurance company. The underlying MSCI USA ESG Leaders Index provides exposure to large- and medium-cap U.S. companies with high ESG performance relative to their sector peers.