The growth of environmental, social and corporate governance in investing

More firms now screen their investments for human rights, workers’ rights, corruption and pollution, writes Dan Tammas-Hastings

 
The wealth management industry is continuously changing. As we have seen over the last few years, active management is falling out of fashion and has become less ‘fashionable’ with asset allocators every year this millennium. In the last decade since the global financial crisis, we have seen the relentless expansion of the passive management industry and a consumer base that is more cost-aware than ever before. The king of passive management, Vanguard, is now the largest asset manager in the world and its relentless growth and outperformance of its peers (both in attracting assets under management and in investment returns) continues. The firm has always been the parent of both passive and low cost solutions in asset management and this has had dramatic effects on the industry. As it looks to defray cost pressure, areas of asset management where cost pressures are weaker are of note to the industry.

There is indeed one area of active management that is expanding dramatically, and with less pressure on fees, and this is ethical- or values-led investing. In financial jargon ethical investing is often known as ESG (environmental, social and corporate governance) or SRI (socially responsible investing). ESG has now become the most used term to represent an investment methodology that incorporates risk, return and social outcomes, replacing the previously popular SRI. ESG is predicted to grow at 15% a year for the next few years and how ESG frameworks develop should be of interest to anyone who is concerned about the environment or interested in the investment industry.

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