Nudging towards the ESG tipping point

By Ben Bathurst and Mandeep Jagpal, RBC Europe Limited
Published August 31, 2020 | 1 min read

UK Wealth Managers have been slower to embrace ESG than the institutional investment industry, with more focus placed on financial performance and security. However, this is likely about to change as MiFID II amendments set to be implemented from late 2021 and will require investors to be asked about ESG considerations as an extension of the suitability test. This, coupled with greater demand for ESG propositions among a younger public, means ESG should become a key theme for the sector over the next 12-18 months.

Disclosures and Disclaimers

Demand for ESG set to increase – creating a risk for wealth managers that don’t act

We think an ESG “perception gap” may already exist within wealth management, and that the COVID-19 crisis may have increased interest. With annual intergenerational transfer flows set to double between 2018 and 2027, incorporating ESG creates an opportunity to increase the appeal of the sector to new investors, particularly as so much of the wealth transferred is linked to property.

Regulatory imperative creates near-term catalyst to address ESG inertia

A regulatory imperative like the MiFID II amendments should also push intermediates and advisers to embrace ESG. Concerns around investment performance should abate as data increasingly shows superior returns of such strategies. Furthermore, the industry has displayed great adaptability and resilience after undergoing extensive change since the Financial Crisis, and we believe in its ability to incorporate ESG into their service – particularly as it will address a client need.

Propositions are beginning to emerge

We expect central research functions to play a key role in the development of new propositions, with bespoke solutions offered for a subset of investors with greater ESG requirements. Larger wealth managers are better positioned to adapt to this new paradigm, but the cost could be felt proportionately at smaller outfits. This could accelerate sector consolidation.

Ben Bathurst and Mandeep Jagpal authored “Nudging towards the ESG tipping point’. This report was published on 21 July 2020. For more information about the full report, please contact your RBC representative.

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Ben Bathurst, RBC Europe Limited
Equity Analyst

Ben is the Head of the European Diversified Financials Team. Ben joined RBC in January 2019, and has previously worked at Nomura International and then at Société Générale, covering the UK life insurance and wealth management sectors (7 years industry experience), and qualified as a chartered accountant whilst at KPMG. He has a Land Economy and Management Studies degree from Cambridge University.

Mandeep Jagpal, RBC Europe Limited
Equity Analyst

Mandeep Jagpal joined RBC in September 2018. He was previously a consultant in the investment industry. Mandeep graduated with an undergraduate degree in mathematics from University College London, is a qualified actuary and has completed CFA level II.

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