Standard Chartered: Why the ‘S’ in ESG is a priority in private wealth
Environmental, social and governance, more commonly known as ESG, has become a ubiquitous term to describe responsible and sustainable business practices, but in most cases, the ‘E’ or environmental considerations, particularly climate change, has been the primary focus. Companies – and their investors – are now looking not just to their regulatory obligations and net zero strategy, but also seeking to be fair to people as well as to the planet.
Research conducted by Standard Chartered Private Bank among its private banking clients reveals that sustainability is becoming an important priority. As many as 68 percent of retail and HNW investors surveyed believe it is possible to do good while making money. And 66 per cent would like to be proactive in seeking investments in organisations that adopt positive ESG practices, while 73 percent would prefer to invest in organisations that seek to do additional good in the world and/or actively pursue sustainability. Among those surveyed, 94 per cent had already included a sustainable investment as part of their portfolio.
According to Grant Parkinson, head of consumer, private and business banking for Europe at Standard Chartered, Standard Chartered’s research emphasises that investors are embracing a wide range of both environmental and social priorities in their investment decisions. Among high-net-worth investors, for example, 45 per cent placed a high priority on affordable and clean energy, 39 per cent on safe, resilient cities and communities, and 38 per cent on zero hunger, quality education and responsible consumption and production. In fact, these figures slightly exceed the focus on climate action (37 per cent).
The difficulty, however, is that it’s not always easy to determine what the « S » in ESG means, given the range of topics it covers. The risks associated with social issues can also be more difficult to quantify than environmental considerations, and the link between responsible social practices and business performance may be more tenuous.
This is likely to change as the quality of ESG data and regulations around disclosure reporting improves. According to Grant Parkinson, Standard Chartered uses external data providers to provide robust, independent scoring of ESG metrics that underpin its sustainable investment offering. They also actively assess and monitor asset managers’ ESG strategy, the breadth and depth of ESG integration, team expertise and engagement with firms in which they are invested, stewardship and impact reporting. This combination is very important to reduce the risk of “greenwashing” that can be misleading to investors, and to increase the reputation, prevalence and impact of sustainable investment that has E, S and G at its heart.
“While we cannot underestimate the importance of the environmental and governance criteria, indeed, the social one is becoming the one we notice the most emphasis on. It may have become especially important after the different crises the world have been through. However, all the three should be equally considered for a quality sustainable investment which is gaining more and more interest these days.”