Against the backdrop of what seems to be a daily barrage of bad news, a growing number of clients are looking for greater ways to make some sort of difference in the world.
Some are volunteering. Some are turning to civic involvement. But more and more, I see people seeking to influence change with their dollars.
Where once philanthropy was their primary outlet, responsible investing is emerging as another effective way for investors to have an impact on things they care about, whether that’s the environment, diversity and equality in business, geopolitics or the like.
Responsible investing is something large asset managers, institutional investors and foundations have been doing for years. But it hasn’t quite found the same level of enthusiasm among investors – even high-net-worth (HNW) investors – yet.
The growth of responsible investing
In the U.S., responsible investing assets have skyrocketed to US$17.1 trillion as of 2020, a 42 percent increase in two years, according to The Forum for Sustainable and Responsible Investment. That’s projected to grow exponentially as companies continue to innovate and strive for positive impacts.
And then there are the returns. While many still question the “doing well by doing good” mentality behind responsible investing, data increasingly show the two don’t have to be mutually exclusive. In fact, Barron’s 2020 annual ranking of big-cap equity mutual funds found those that rank high on sustainability are outperforming the market.
In a recent study, stock funds outperformed across global markets over the last five years if they were weighted toward companies with positive environmental, social and governance (ESG) scores, according to research from sustainability data firm ESG Book, as reported by Reuters in July 2022.
Growing inflows and positive returns are the kinds of things that pique the interest of HNW investors. But are wealth managers ready to serve them?
Understanding what clients want
In response to what we believe will be a surge in attention from our clients in responsible investing, we have three model investment portfolios that employ various responsible investing strategies. Interest in those funds is already strong, particularly among women, and we expect to add more offerings in this space.
But a wealth manager’s role is much bigger than making sure we have the right products in place.
For many, responsible investing is about incorporating ESG considerations to an investment portfolio. Responsible investing is attractive for investors looking to align their personal values with their financial goals. Wealth managers that really want to help their clients successfully navigate responsible investing should be more proactive and intentional about understanding their values, how they might want to make a difference in the world, and then weave those values into their short-, mid-, and long-range wealth plans.
That’s why advisors at RBC Wealth Management-U.S. are incorporating a discussion about responsible investing into the wealth planning process with clients.
For us, it’s not that big of a stretch.
Creating impact in our communities
RBC is a leader in sustainability, another key area of focus for responsible investors. Our approach to sustainability is central to our business and to our stated purpose: to help clients thrive and communities prosper. That’s a large part of why RBC is also often listed as a holding in several responsible investing indexes, including Pax Ellevate Management’s Impax Global Women’s Leadership Index and the FTSE4Good Index. We also believe capital can be a force for positive change, clearly demonstrated by a new business target: $100 billion in sustainable finance by 2025.
This commitment supports our enterprise climate strategy, the RBC Climate Blueprint, aimed at accelerating clean economic growth through our strengths in finance, investment, risk management, innovation, economic research, and community investments. This strategy includes RBC Tech for Nature, a multi-year commitment to new ideas, technologies and partnerships focused on finding solutions to shared environmental challenges.
As our global CEO, Dave McKay so eloquently wrote in our 2019 annual report, “We are proud of the contributions we make in the communities where we work and live—our long-term success depends on it.”
It makes sense that we would also be convinced of the merits of responsible investing.
Due diligence processes do not assure a profit or protect against loss. Like any type of investing, ESG and responsible investing involve risks, including possible loss of principal.
Past performance does not guarantee future results.
RBC Wealth Management, a division of RBC Capital Markets, LLC, Member NYSE/FINRA/SIPC.
RBC Wealth Management–U.S.