Wealth and Value Creation through Asset Management and Sustainability

ESG is a hot topic in the boardroom as sustainable finance takes off


By Isha Choudhury





Climate change and ESG have become hot topics in the boardroom, with senior executives expressing increasing interest in climate-related decisions. This has been driven by regulatory pressure on disclosures and a focus on climate action. Since 2020, climate change has become a top global risk, among other risks like biodiversity loss, natural disasters, and extreme weather. The financial sector plays a crucial role in defining the progress and transforming economies to reach their climate goals. On the climate agenda map, there’s a lot of traction on standardization, non-financial disclosure, ESG integration, and sustainable finance.


For asset managers, ESG allows delving into value creation by sustainability across a large range of stakeholders. According to a study by Morningstar, global ESG fund assets increased to $2.74 billion in December 2021, from $1.65 trillion in 2020. One of the main forces enabling ESG investing in mainstream investing is the pandemic. COVID-19 forced investors and asset managers to focus on the vulnerability of the financial system and the materiality of social factors in asset management. Through the waves of the pandemic, it became evident that investments which incorporate specific ESG factors are resilient, outperforming those investments which don’t consider or report ESG.


Leading exchange-traded funds by Blackrock’s iShares and Vanguard have outperformed the S&P 500 over the last few years. The top-ten U.S. ESG exchange-traded funds (ETFs) had over $60 billion under their management in March 2022. These funds thus avoid companies involved in thermal coal, oil sands, controversial weapons, etc. By investing in ‘green companies’ wealth managers can show prospective clients that they care about the well-being of future generations.


To remain competitive, wealth managers must be able to offer clients ESG investing strategies or they could lose their business. At a time when sustainable investing has become so mainstream, it is hard to avoid the need for ESG funds in a portfolio. As per a 2021 study by Morgan Stanley Institute for Sustainable Investing, 79% of U.S. individual investors and 99% of millennial investors are interested in sustainable investing.


The example of Merck Asset Management is illustrative here, as the wealth management announced the inaugural issuance of a $1 billion sustainability bond in December 2021. Merck intends to put the net proceeds of this bond to support projects and partnerships in the company’s priority ESG areas and contribute to the advancement of the UN SDGs. Merck has introduced the Sustainability Financing Framework, which facilitates the company’s use of the sustainable capital markets to invest in companies aligning with ESG commitments. The wealth management sector is already seeing traction towards ESG from wealth management giants like Blackrock, and Credit Suisse, among others. This is a call for sustainable investing – driving up returns and exercising profit with purpose.


If asset management companies become aware of the extent to which climate change can influence their business and operations, they can begin climate change integration. This happens through the right tools, effective governance, and policy considerations. Without effective governance, companies struggle to make informed decisions and track climate-related metrics. The goal for asset managers is to ensure that ESG factors are included in their strategic business planning, without which business sustainability can prove increasingly difficult in the years to come.


When it comes to planning for your ESG reporting strategy, a good first step is to consult with The Global Imprint team. Without any obligation, you can ask the questions and pose the challenges that you face, then get clear, responsive answers.