Why is ESG important for your wealth management portfolio (and what exactly is it)?

ESG is a bit of a buzzword in the business and financial services world at the moment, having gained traction since becoming a mandatory requirement for over 1,300 of the UK largest organisations in April 2023. 

Environmental, social, and governance (ESG) investing is a rapidly growing trend in the wealth management industry. ESG investors consider non-financial factors alongside the more  traditional ones when making important  investment decisions. These factors can include a company's environmental impact, its social responsibility practices, and its corporate governance structure. 

Lets break down what we mean by each of these:

E = Environmental impact in ESG refers to the impact that a company's operations have on the natural world. This includes issues such as greenhouse gas emissions, water pollution, air pollution, waste management, and resource consumption.

S = Social impact in ESG refers to the impact that a company has on people and society. It’s less well known than environmental considerations, and can include employees, customers, suppliers, and the communities in which a company operates. Social impact factors that are considered in ESG investing are often:

  • Human rights: Respect for human rights, including labor rights, gender equality, and diversity and inclusion.

  • Employee relations: Fair and equitable treatment of employees, including wages and benefits, workplace safety, and training and development opportunities.

  • Product safety: Commitment to producing safe and high-quality products and services.

  • Community impact: Positive impact on local communities, such as through philanthropy, job creation, and environmental protection.

  • Supply chain transparency and sustainability: Commitment to ethical and sustainable sourcing practices.

G = Governance in ESG refers to the way a company is managed and controlled. It includes factors such as the board of directors, executive compensation, risk management, and transparency to stakeholders.

Good governance is important for ESG because it helps to ensure that a company is well-managed and that its interests are aligned with the interests of all its stakeholders. This includes shareholders, employees, customers, suppliers, and the community.

So why should I consider ESG investments for my financial portfolio?

There are a number of reasons why ESG is so important for wealth management, including:

  • ESG investing can help our clients to align their investments with their values. Many investors want to put money into companies that are making a positive impact on the world. The belief is that ESG investing allows investors to do this without sacrificing financial returns. It's in line with our ethos as wealth managers, and something we are deeply committed to. 

  • ESG investing can help clients to manage risk. ESG factors can be a useful indicator of a company's long-term performance. Companies with good ESG practices are more likely to be well-managed and resilient to future shocks.

  • Longevity. ESG investing could help clients to generate superior returns. A growing body of research suggests that ESG investing can lead to superior risk-adjusted returns over the long term.

How do non-ESG compliant companies present more risk to investors?

Here are some specific examples of how ESG factors can impact investment performance:

  • Environmental factors: Companies with high levels of greenhouse gas emissions or pollution may face increased regulatory costs or reputational damage in the future.

  • Social factors: Companies with poor employee relations or a history of safety violations may experience higher turnover rates and lower productivity.

  • Governance factors: Companies with weak corporate governance structures may be more likely to engage in fraud or other unethical behavior.

How do I integrate ESG into my wealth management Strategy?

Investors can integrate ESG factors into their wealth management strategies in a number of ways. One option is to invest in ESG-focused funds. These funds invest in companies that meet certain ESG criteria. Another option is to work with a wealth manager who can help to incorporate ESG factors into a customized investment portfolio.

ESG investing is becoming increasingly important for wealth managers. In a 2022 survey by PwC, 90% of wealth managers said that ESG is a top priority for their business. And 85% of investors said that they are interested in ESG investing.

If you are considering ESG as part of your wealth management strategy, it is important to do your research and talk to a qualified financial advisor, such as Ifamax. ESG investing is a complex topic, and there is no one-size-fits-all approach. Get in contact with us to book an initial consultation or take a look into our ESG policies.


Ashton Chritchlow