High Net Worth Investors in the U.S. (and Their Next-Gen) Reach for ESG

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A report by Cerulli Associates says wealthy American investors, as well as their next-gen successors, are considering ESG investing.

High net worth (HNW) investors in the US are increasingly gravitating towards environmental – social – governance (ESG) investment strategies, says Cerulli in their new report.

The report says about 58% of HNW advisory practices may boost their ESG investing allocations in the coming year. This is a reflection on the underlying trend of a growing preference for ESG exposure by wealthy investors.

According to Cerulli’s survey, the drivers for ESG investing are environmental concerns (69%), a desire to make an impact (54%), and ethical issues (52%).

This trend comes with responsibilities for advisors. They must do more to understand the key motivations for clients’ tendency towards ESG, says Cerulli.

In another important shift, ESG investing is moving out from negative or exclusion based strategies to a more positive orientation such as impact investing. Negative strategies include those that filter out companies with products such as tobacco or armaments.

NexGen investors and ESG

Interestingly, NexGen investors that receive inheritances from their wealthy seniors are also likely to be disposed in favor of ESG. As a result, they are likely to appoint advisers with ESG expertise. Therefore, according to Cerulli, the number of ESG-skilled HNW advisors is likely to grow in future.

“As next-gen investors begin to inherit wealth and become more involved in their families’ investment decision-making processes, their interest in socially responsible investments presents a significant opportunity for the emergence of ESG strategies,” said Chayce Horton, analyst at Cerulli.

HNW investors and constraints in ESG investing

According to Cerulli, HNW practices addressing the ESG trend must conduct proper due diligence. Further, they should assess the true environmental and social impact of the investments by their HNW clients.

This can be a challenge because of the nascent stage of ESG and data constraints.

[Related Story:  How Seriously Should We Take ESG Investing in 2020?          ]

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