The pandemic has disrupted many parts of our lives, both domestically and commercially, but whilst the daily pace has slowed, many social and economic trends have accelerated. And for the investment community, it was a watershed moment.

Shifts that were only just in motion became commonplace overnight. Transforming the industry into one that was digital-first and socially-minded. Where investor expectations and ways of working were utterly upended. The full consequences are yet to be realised, but the next three years will be pivotal as some firms capitalise and others stumble.

In order to help wealth management firms understand what these profound shifts mean, Deloitte teamed up with ESI ThoughtLab and others to conduct a pioneering thought leadership research program, Wealth and Asset Management 4.0.

As the report illustrates, wealth providers are mounting greater importance on social impact investing. These are investments intended to generate a positive, measurable social and environmental impact and still deliver a financial return. And with four out of 10 senior management teams indicating their commitment to their social and cultural values, clients will want to know providers' care and have a clear stance on best practices.

This rise in popularity means that firms must be knowledgeable about Environmental, Social, & Governance (ESG) criteria. Particularly as 31% are seeing ESG investments achieve high returns, and more than a third agree that clients are willing to accept lower returns regardless. Proving that corporate responsibility and purpose are becoming mainstream decision factors.

Moving with the ESG tide

That said, although most firms feel ESG funds do a decent job in delivering goals (despite some controversies around transparency and performance metrics), there is some caution. A quarter of firms feel that if the market falls, ESG investing will decrease. The big believers, though – 48% of family offices, 43% of private banks, and 40% of trust firms – feel ESG will be a strong market with many viable opportunities.

A trend that looks set to continue in Europe as firms across France, Switzerland, Germany, and the UK become more ESG inclined. Paralleling those in Japan and the US who are also seeing momentum increase. Right now, the projection is that 34% of all investors will seek ESG advice over the next two years. Emphasising the need for providers to provide appropriate guidance to investors.

The future looks bright

It's clear from the report that social impact investing isn't slowing down anytime soon. So, firms should be prepared to update their offerings with ESG products and services to keep up with investors' needs.

Yet, although the opportunities are tremendous, the need for 'complete data' is urgent. As more emphasis is placed on detailed analytics and actionable insights, the demand for transparent, granular, and standardised data will only increase. Feeding into the ongoing education of investors to help them define what good governance looks like.

A Global Head of Wealth Management sums it up perfectly.

"In the past, the prevailing mindset was that ESG investing was no more than corporate altruism. This perception has steadily changed, with investors increasingly viewing ESG investing as central to their investing strategies and wealth firms differentiating their services using ESG criteria. This trend is set to continue, and we expect ESG related considerations to have ongoing and ever greater implications for the wealth industry."

So, to stay on top of everything you need to know about social impact investing and the latest developments in ESG, download our Wealth and Asset Management 4.0 report.

This post was  first published on the Deloitte UK Financial Services Blog

Key contacts

Jean-François Lagassé - Managing Partner, Financial Services Industry, Switzerland

Jean-François is the Swiss Financial Services Industry Leader and a Partner within Deloitte Switzerland’s Financial Advisory business. He also leads our Global Wealth Management segment and is a member of the Swiss Executive. He has more than 20 years of professional experience in the field and has worked in the United States, Canada and Switzerland. Jean-François has successfully completed numerous M&A advisory and valuation mandates in sectors such as financial services, technology and telecom industries.

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Patrik Spiller - Partner, Monitor Deloitte Strategy Consulting and Wealth Management Industry Lead

Patrik leads Strategy and Analytics in Switzerland as well as the Wealth Management Industry Practice in North South Europe. He has 20 years of experience in banking industry consulting. He supported many leading international banking institutions and wealth managers in the development of innovation and transformational strategies, technology and operational strategies as well as shaping cost reduction programmes.

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