Global wealthy plan to double their impact investments by 2025

New report finds that climate change and Covid-19 are driving investment choices

According to experts, no one can agree on how to weigh ESG components – resulting in some surprising fund holdings. Getty Images

The average portfolio allocation for sustainable investments among private wealth holders and family offices is set to almost double from 20 per cent in 2019 to 35 per cent by 2025, according to a new research report.

The proportion of wealthy investors allocating more than 20 per cent of their portfolio to impact investing is expected to increase from 27 per cent to 39 per cent by 2021, while 27 per cent are expected to allocate more than 50 per cent by 2025, Barclays Private Bank, Campden Wealth and Global Impact Solutions Today said in their Investing for Global Impact: A Power for Good report released on Tuesday.

“Families are considering the impact of their capital and then increasingly taking action by allocating more towards solving our urgent global societal and environmental issues,” Damian Payiatakis, head of sustainable and impact investing at Barclays Private Bank, said.

At a time when several industries have been upended by the coronavirus pandemic, investors are favouring transparency, diversity and sustainability, and pumping funds into companies committed to environmental, social and governance (ESG) priorities.

The sustainable investment market has grown by more than 30 per cent since 2016. Globally, almost $1 trillion of assets were held in sustainable funds, of which 75 per cent were held by institutional investors and the remainder by retail investors, the Organisation for Economic Co-operation and Development said in a September report.

The Investing for Global Impact: A Power for Good report found that 38 per cent of respondents surveyed said they have a responsibility to make the world a better place. Nearly a quarter of respondents to the survey, which was conducted with more than 300 respondents from 41 countries, believe a sustainable investment approach will offer better returns and risk profiles, while 26 per cent are looking to show that family wealth can create positive outcomes around the world.

“Globally, over $30tn is now being invested sustainably and this trend towards responsible investment is catching on rapidly within the private wealth community," said Rebecca Gooch, director of research at Campden Wealth, a global organisation representing 1,400 multigenerational business-owning families and family offices across 39 countries.

"There are expectations, particularly since Covid-19, for a considerable hike in their investment over the coming years.”

Thirty-nine per cent of respondents said they want know the carbon footprint of their portfolio before investing, while 19 per cent already have this information. Among those who know their carbon footprint data, 13 per cent will consider it when making further investments and 9 per cent will use it to actively to reduce it towards a target.

Meanwhile, 80 per cent of wealthy investors feel a responsibility to support global social and environmental initiatives and 87 per cent said that climate change plays a part in their investment choices, the report found.

“There has never been a better time to fast-track investment for sustainable progress and smart innovation to generate profound impact for people and the planet,” said Gamil de Chadarevian, founder of Global Impact Solutions Today, a think tank on impact investing.

However, 69 per cent of respondents said Covid-19 affected their views of investing and the economy, 49 per cent said investing will not return to normal even after the pandemic subsides and 22 per cent think that the impact investing market is set to take off.

In a sign that impact investing is a long-term trend, 66 per cent of wealthy investors said they are likely to broaden their risk assessment to include more ESG factors, and 69 per cent said the way companies behaved during the crisis will determine their investment attractiveness afterwards.

Healthcare was ranked the second-most popular impact sector, with 84 per cent of wealthy investors saying they plan to increase their investment in this sector over the coming year.

“For many, responsible investing is not only the ethical thing to do, but it is simply good business practice,” Ms Gooch said.

The respondents to the survey, now in its seventh year, have an average net worth of $876 million and an estimated cumulative net worth of $264 billion.