In the latest instalment of the Clarity Clinic, Russell Waite, the director of Affinity Private Wealth, describes his experience of taking a sustainable investing qualification, and describes how millennials are changing misconceptions about ESG.
1) What do you consider as your primary driver for embracing a sustainable approach to investment?
A) We are a business that was established in 2011 and we are private client led. A wave of wealth is in the process of being transferred to millennials. It is cascading down from grandparents via trust structures or from relatives. Among millennials, there is a real appetite to do good and see a positive impact while making a good capital or income return.
We became increasingly aware that this is a growing area for investor demand. As a team, we said we need to think about how we are going to cater for this. I said, I would happily upskill and undertook to study for a year-long course with Canada’s Concordia University, which is partly recognised by the CFA Institute.
2) When you were looking at the choices for qualifications, how did you decide on Concordia?
A) One of the issues for anybody who wants to study in this space, is there isn’t any clear pathway of study for any of the professional bodies that you might be affiliated to. If you are in any business in the wealth management space, you are generally in the Chartered Institute for Securities & Investment or a member of the CFA Institute.
One of the things I have been reading around is whether the various professional bodies will start to step up and introduce formal sustainability or ESG qualifications for their members. A lot of work is being done around ethics, which forms part of the governance issues, but the difficulty is that ‘ethics’ can be defined in many ways.
Some professional bodies would argue that ethics is covered by the existing professional qualifications, but all the other requirements around sustainability are not. I had to have a sweep around to find a qualification provider. Having now completed my studies, I now know that Cambridge has a very good Sustainable Leadership Institute, with a reputable team of individuals and Oxford University has done something similar.
3) Do you think that professional qualifications in ESG metrics will have an impact on investor attitudes towards sustainable investment approaches?
A) Clearly, the whole area is attracting more interest. There is a demand for investors to be speaking to people who at least have a reasonably grounded understanding of what it is all about. To demonstrate credibility or a level of professionalism, it can’t be long before the two main bodies will launch qualifications in this space. The Global Impact Investing Network published a paper for the next 10 years, three or four months ago, and one of the points they raised was that there should be a matrix of qualifications.
4) From your studies, do you think we have reached a stage where at least some ESG criteria and terms have a globally recognised set of definitions?
A) Unfortunately, there is an alphabet soup of narratives that are going to mean different things to different people. Eventually, there is going to have to be a global taxonomy and global set of definitions as to what constitutes a sustainable investment. This is something that the European Union has said they would like to clarify.
5) How has the growing awareness of sustainability approaches influenced the discretionary investment service that you offer?
A) We have launched a discretionary investment service with an outcome orientated mandate that looks to outperform inflation. The portfolio is populated by funds with a sustainable theme. As part of that solution, we have undertaken to clients that we will report to them what we consider to be the key sustainable or positive impact result of the portfolio that they are invested in. We know that is going to be very qualitative and subjective, based on our interpretation. Obviously, we will be the driver of what we report, so it would be good, in time, to have further guidance on what we should be reporting.
6) How are the attitudes of the next generation of investors different from the current client group and how will the current inter-generational wealth transfer transform ESG screening of investments?
We have done quite a bit of research on this. The millennial cohort around the globe is about to become the biggest cohort around, but millennials in Asia are likely to have different investment objectives to millennials in Europe or the US. Where family wealth is being controlled by the older generation – those of 65 and above – there is still an element of scepticism as to what ESG really means. Does it add value or is it just something which is “flavour of the month?”
In the next generation down, a proportion of them are very engaged and when they are asked to have input, they are very keen to see sustainability issues applied to portfolio construction. You have to wonder how long will it be before the majority of assets will be managed in sustainable asset mandates. We feel that it is going to increasingly become the norm as the millennial cohort inherit wealth.
