It is hard to escape conversations about ESG and sustainability in the wealth sector. This Earth Day these discussions will only be louder. We are reminded of the challenges facing the planet and the need for urgent and decisive action.
Despite greenwashing concerns, the private wealth sector does appear to be making progress in this regard.
But, can a sector focused on wealth and returns every truly be sustainable?
Its critics will say no.
High net worth individuals – the sector’s clients – tend to be some of the largest carbon emitters. Frequent travel, including the use of private jets and yachts, purchasing the latest gadgets and cars, and having extensive wardrobes all contribute to a higher level of emissions than the majority of the population.
For this reason, some say it is hypocritical for these individuals to live in this way but put a proportion of their wealth into sustainable solutions and believe they are doing enough to tackle climate change.
Meanwhile, some argue that economic growth is at odds with fighting climate change. These individuals argue that reducing the size of the economy is key if to successfully meeting climate goals.
Instead, others argue that we need to transition to a sustainable economic system. After all, climate disasters will not be good for economies. Companies committed to mitigating these look likely to perform well over the long term.
Most now accept this new financial system will be required. Even Mark Carney, a former governor of the Bank of England, has called for this. He believes the transition is underway but is not yet moving fast enough.
With this in mind, it does seem possible for the interests of clients and the planet to be aligned. However, it will take a lot more than simply sticking an ‘ESG’ or ‘green’ label on a fund.
A focus on genuine impact rather than simply divesting will be necessary if the industry is to become fully sustainable.
There are still some that argue this will not go far enough.
Yan Swiderski, from Global Returns Project, has made the case for symbiotic wealth management. He believes regenerative investments are the “new, critical complement” to any sustainable investment portfolio. The idea is that clients will allocate a small proportion – around 0.25 percent – of their portfolios to this type of investment.
It is hard to say which direction sustainable investments will take. But, with collective and collaborative action across the industry, the private wealth sector can become an effective force against climate change.
