As global pressure mounts on both individuals and businesses to shift to more sustainable ways of operating, investors and high-net-worth families are increasingly committing to having environmental, social and governance (ESG) factors included into their investment choices.

     ESG: Environmental, social and governance criteria are a set of standards for a company’s                       operations that socially conscious investors use to screen potential investments.

The last decade has witnessed a true epiphany in investment habits. There was a time when ESG considerations were a "nice to have" or were seen as a drag on investment performance, to be tolerated for the sake of demonstrating good social conscience. Ocorian has witnessed a change over that time with both "push" and "pull" factors.

The world's media and rising portions of the population are becoming ever more vociferous about the effect our behaviours have on our planet and all that inhabit it, forcing wealthy investors to reassess their viewpoints. At the same time, sustainability has been demonstrated to lead to a path of efficiency and profitability - any manufacturing firm which can utilise or sell its waste products will surely triumph over one that merely dumps their waste.

Private wealth has an important role to play in mobilising capital aligned with ESG investment factors, particularly when family offices are increasingly pursuing private equity investments.

Witnessing the change

Ocorian has observed client behavioural change across its large Private Client base and Alternative Investment fund clients. We receive insights into the behaviours of a wide group of investors, from private to institutional. One such client, Foresight Group, a leading infrastructure and private equity group, recently shared their thoughts with Richard Joynt, an Executive Director in our Family Office practice, on what influence the socially conscious ESG factors are having within the industry.

No longer just niche

Previously something seen as 'specialist' and 'niche', typically attracting smaller allocations from investors, Foresight recognises that ESG factors have become a central theme in client investing. In response to this trend, Foresight has created a range of investment solutions for clients who are conscious of these factors.

For example, Foresight are in the market with their flagship energy infrastructure fund – the Foresight Energy Infrastructure Partners (“FEIP”) Fund – which is a sustainability-led fund focused on investing in renewable energy assets as well as the accompanying renewable-enabling infrastructure that is required to support the further build out of renewables. FEIP evaluates all potential assets, both pre and post investment, using a bespoke in-house Sustainable Evaluation Criteria tool.

Foresight also follows the United Nation’s Sustainable Development Goals (SDGs). The SDGs are a set of 17 goals forming an ambitious blueprint for a world without poverty, inequality and environmental harm; they are used to evaluate sustainable investment potential and are directly linked to business success. And it is the notion of having these ethical factors at the heart of investment decisions that is shaping strategies in both the Private Client and institutional investor spheres.

      Responsible Investing: An approach to investing that aims to incorporate ESG factors into                investment decisions, to better manage risk and generate sustainable, long-term returns.

Sustainability as a pre-requisite

As ESG factors play an increasingly important role in investment decisions, both Private Client and fund management professionals need to consider their importance when making or advising on investments for their clients. As CEO of Blackrock, Larry Fink, stated, "To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society."

In testament to this, Foresight cited some of their client investor feedback (anonymised), highlighting the increased focus on investing in accordance with ESG factors:

• Significant manufacturing investor: Believes that managers who invest sustainably will be the ultimate winners.
• Large banking client: Stated they can only invest in managers who have signed up to UNPRI (The United Nations-supported Principles for Responsible Investment).
• Public pension fund client: Has a strong requirement that all fund managers have a focus on ESG and sustainability.

It is clear, therefore, that fund management professionals, Private Client advisers, family offices and advisers need to become more aware of what is now available in the sustainability space - there are some very sophisticated funds which track and monitor the impact their investment activities are having on their environment. 

Such is the drive for ethically responsible investments that it seems as though it is only a matter of time before ethically irresponsible investing starts to carry penalties. This careless form of investing also runs the risk of reputational damage for associated investors; as was the case with the Church of England as they denounced payday lender Wonga, only to later discover they were one of its investors.

As global pressure continues to mount and social consciousness sweeps through both private and public sectors, ESG factors influencing investor actions are becoming the expected norm.

Experienced family office professionals such as those at Ocorian have been assisting their family office clients consider the ESG question 'in the round', looking at the issue holistically and aligning the factors to the family's aims.

Additionally, our alternative investment team work with clients in the private equity space who have ESG as a key pillar of their investments. We understand the main profiles of the leading ESG-focused fund managers, and perform asset performance monitoring services for family office clients, in conjunction with investment professionals. You can learn more about our family office services here and our fund services offering here.

You can also learn more about infrastructure and private equity investment manager, Foresight Group here. Contributions from Foresight came from Dan Wells, Partner and Beth Watkins, Investment Director.