Only 54% of private wealth advisory and family offices incorporate ESG into their management practices or when evaluating investment opportunities.
Private wealth and family offices show lower uptake in ESG principles in their investment strategies when compared to GPs working with institutional investors, and they do it more on a case-by-case basis, according to PitchBook’s 2024 Sustainable Investment Survey. Despite asset managers trying to create ESG-related products, the level of diversity in the segment remains challenging for implementation.
Some 20% of the private wealth and family office respondents said they always incorporate ESG into their management or evaluation of investment opportunities, and 34% said they do this some of the time.
The overall response from the survey—which also includes fund managers, asset owners and investment consultants—shows a higher rate of ESG engagement at 64%.
It could be more challenging for private wealth managers to implement ESG practices because of the clientele they serve. These managers often work with a wide range of individuals coming from different backgrounds who may have different interpretations of ESG. They would require a more tailor-made program rather than a uniform strategy.
Nearly half of the respondents in the private wealth space said the understanding of ESG varies widely across investors, compared to 39% of the general population, and the wide gap in understanding can contribute to challenges. One wealth manager from the Asia-Pacific region said the asset owner’s lack of awareness made it difficult to push through ESG agendas.
Private wealth managers are also less likely to decline an investment based on ESG concerns; only 60% have done so in the past. All three elements—environmental, social and governance—come close to each other as potential deal-breakers for institutional activity, yet private wealth managers are more likely to refuse a deal based on social concerns.
Despite the lower overall engagement in ESG investing, private wealth participants are more likely to alter their investment strategies in relation to current economic and geopolitical events.
A total of 43% of the respondents have increased their focus on sustainable investing following recent events, citing increases in temperatures, wealth redistribution within society and enhancing returns as some of the motivations.
However, 14% of respondents lowered their focus. Some cited negative comments on ESG investing and confusing definitions as the trigger.
When the private wealth channel does make impact investments, they are more inclined than other respondent types toward real estate over land. Affordable quality housing and green buildings provide a more immediate solution to human needs than natural resources conservation and sustainable land management. Real estate also provides a higher opportunity for a market-aligned return than land investments.
Other impact investing areas popular within the private wealth ecosystem include climate, energy efficiency, education and water.
Featured image by Daisuke Kondo/Getty Images
