When it comes to regulatory change, wealth managers have two choices: they can either “run down the clock”, changing the way they do business only to the extent that they absolutely must; or, they can seize the initiative and commit to achieving the maximum business benefit they can out of the new regime.
The EU has led the way on ESG reporting with its Sustainable Finance Disclosure Regulation and accompanying taxonomy framework, but similar moves are well underway globally, including of course in the UK. Now is the time to decide whether to compete or just wait to comply.
The introduction of UK sustainability disclosure requirements and a sustainable investment labelling system may be a little way off, but there is no time at all to be lost, particularly when firms with their finger on the pulse are already leading the way. As one always really should, they have embraced inevitable change in full appreciation of the opportunities it presents to them and their clients.
This course was set a long time ago, but we are now speeding to our destination. First came the COVID-19 pandemic and now tragically a war, with both exposing with quite painful force how urgently global issues need to be addressed and understood in the context of a portfolio. The pressure for wealth managers to make what might be quite radical changes is coming both from the regulator, and from individual investors who now appreciate more than ever what is at stake in how each and every one of us deploys our capital.
A stark divide
The scale and impact of the shift to sustainable investing reminds me of when the first regulation around suitability came in, and a similar stark division between the leaders and the laggards is apparent once again. Now, as then, we’re seeing firms readying themselves for rule changes well ahead of time as they have seen it is simply good business. The difference today of course is that we are talking about nothing less than the ultimate good of the planet and its inhabitants too.
Wealth managers stand at a critical juncture on sustainability. It is no exaggeration to say that the regulatory – and reputational – risks are immense if they underinvest in their capabilities. On the flipside, the rewards for “doing” sustainability really well are commensurately great, with these spanning reduced risks, improved investment performance and very much happier, more loyal clients.
The trouble is, while it is fairly easy to make the right noises on sustainable investing, it can be a real challenge to operationalise it so that it is, itself, a sustainable way of doing business which is scalable, cost-effective and readily adaptable to change – and not just of the regulatory kind. The screeching u-turn on attitudes towards defence companies that world events have imposed underscores how important that is; likewise, we can all see the need for considerable nuance on decarbonisation in portfolio construction. Simplistic negative screening is nowhere near adequate today. Depending on the feelings and objectives of your current clients (and those you wish to attract), impact, investor activism and stewardship, positive screening and thematic strategies might all form part of mix.
Born to do it
In many ways, cutting-edge sustainability is what BITA Risk®, part of the corfinancialTM group, was born to do; it is the apotheosis of the mass customisation movement we have spearheaded for many years and rests on the core values of insight and transparency which underpin our whole approach. In fact, constructing, managing, monitoring and reporting on portfolios with sustainability as the north star could be seen as the perfect use case for our technology as it joins sustainability data with every portfolio.
Client institutions certainly seem to agree. A substantial number have already deployed BITA Wealth® ESG Manager to manage, monitor and report on ethical and ESG exposures across client portfolios to great effect and this element of our solution is proving to be a compelling “hook” for entirely new ones as well. Each has a slightly different take on how they should embody clients’ ESG preferences and/or ethical restrictions in portfolios, but they are all united in their desire to embed degrees of ESG customisation rapidly, painlessly and with surety of success.
Very often we win out after a wealth manager has conducted an exhaustive search for a solution and only found the depth and flexibility required in BITA Wealth and our expertise. From fulfilling immediate carbon exposure requirements, through understanding longer term carbon exposure trends across all business divisions, offices, teams or managers, to differentiating through a sophisticated sustainability offering, BITA Wealth ESG Manager can help. To give firms a flavour of what can be achieved, we will be offering studies on recent BITA Wealth ESG Manager implementations. I would urge all firms considering their options to take a look.
The clock is now loudly ticking on ESG requirements, not only from a regulatory perspective but as it regards marketing, client retention, talent management and cost control too. And the overriding benefits of transparency of investment risks and opportunities should not be forgotten. We’re looking forward to showcasing how we’re helping wealth managers hit all these targets with our award winning software and more
So, are you going to gain competitive advantage and act now, or do you think you can afford to wait?
Daryl Roxburgh, President and Global Head, BITA Risk