Brad Harrison quoted in Financial Times’ “How green are your investments?”
Managing Director Brad Harrison is quoted in the Financial Times about Tiedemann's fully integrated impact investing and younger investors' role in the impact investing space. Read the full article below.
How green are your investments?
By Madison Darbyshire
May 23, 2019
Sir David Attenborough, legendary naturalist and BBC television presenter, is changing the way wealth managers do business.
When his Blue Planet II series premiered in 2017, focusing on the imperiled future of the planet, it inspired a UK campaign to eliminate plastic drinking straws and other single-use plastics. It also “pricked the conscience” of investors, says Peter Brooks, head of behavioural finance at Barclays.
Millennials are the oft-cited reason for the broad shift into sustainable investments. Globally, the demographic group is set to inherit $30tn in assets from their parents by 2025, according to internal research by JPMorgan Private Bank. Eighty-six per cent of millennials say that sustainability is a priority for them in their investments.
“This is a cohort that has a very different view of what to do with their money,” says Oliver Gregson, head of UK and Ireland markets at JPMorgan Private Bank.
For wealth managers, offering sustainable investments is not just a priority, it’s a business imperative to attract and retain clients.
In response to a question about how wealth managers are adapting to younger clients’ needs in an annual survey of wealth managers by Savanta and the FT, many noted additions of sustainable investment programmes.
In 2018, Canaccord Genuity Wealth Management launched a new social and governance (ESG) portfolio service with the intention of reaching a younger cohort of customer, according to the survey. At least half of those surveyed provided some kind of impact investing service, as well as positive and negative investment screening. However, investment managers also say this generation requests more information about their investments than their parents did.
But in the relatively young investment field, there can be a lack of available information, as well as questions of definition. Sustainability, impact, ethical and environmental, ESG factors, are terms often used interchangeably though they mean different things.
There is no industry-wide standard for what constitutes an “impact” investment, nor for how impact is measured, the way there is for financial returns. In the US, many S&P 500 companies have yet to report on corporate sustainability factors. “We are in a world of alphabet soup of terminology, which is confusing for clients,” says Mr Gregson.
Mr Brooks says Barclays found that story plays a bigger role in how people choose to invest than the expected returns or scale of the impact.
“There is a huge role in how you frame the way you talk about these investments,” he says. “If you talk about them in terms of a straight investment conversation, people don’t engage with it. But if you talk about it in terms of its impact…people are four times as likely to invest.”
He adds: “People are more likely to invest in the thing they are most passionate about than the thing with the most impact. There is something very personal about the way people are approaching this.”
Broadly, a wealth manager will recommend a diversified, multi-asset portfolio. However, with impact, investments are more successful when done in a targeted way rather than spreading money out across various causes. Rather than a broad-impact focus portfolio, Barclays focuses on providing diversified portfolios with a single impact focus, specific to a client’s particular passions.
Managers say impact strategies can also pay off by increasing clients’ willingness to embrace more diversified portfolios. Barclays found that by including an impact element in global portfolios, they saw a greater appetite (57 per cent) for global investments over home-market focused portfolios, a reversal of client preference when no impact was included.
For some businesses surveyed, sustainable investing has long been a part of their practice. One wealth manager said: “ESG has always been an important element of our investment process and we do not envisage using it as a separate marketing tool.”
Other businesses that have long integrated this approach say that learning how to communicate this to clients has proved challenging. “One thing we learned from all of this is that you sometimes think you’ve communicated something, but you haven’t necessarily,” says Helen Watson, chief executive of Rothschild Wealth Management. Clients thought that ESG was something that needed to be added on top of their investment portfolios, rather than already being included. “For us it was very integrated, we thought that clients knew we thought about businesses in that way, but we actually learned that we need to be more explicit than implicit.”
Amid industry concerns of “greenwashing”, or creating perfunctory but ineffective “sustainable” investment offerings, some wealth managers have opted to go all-in, and see a shift towards sustainability as simply good business.
Tiedemann Advisors, realising that the trend towards sustainable investing was only increasing, decided to become a fully-integrated impact investment house with $15bn in assets in 2017. They did it by acquisition, purchasing Threshold Group, a multifamily office.
“What we don’t have is five people doing impact at the firm. We have that experience and impact across the entire firm,” says Brad Harrison, Tiedemann’s managing director. “We made a collective decision that it was in the best interest of our business.”
Mr Harrison says that the shift in their traditional investment portfolios is being driven by younger investors, but also their parents. “Long-term clients are saying: ‘Tell me more. Our children are saying our investments need to reflect our values’.”