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This five-minute article co-authored by Norbert Paddags explains how private banking can become more profitable with ESG investments. 

Sustainable investing continues to gain in importance, driven by investor expectations and regulation. This creates challenges for portfolio management and the pricing of cost-intensive ESG services. If these are mastered, one can do good and earn money at the same time.

On March 10, 2021, the “Regulation on Sustainability-related Disclosure Requirements in the Financial Services Sector”, or Disclosure Regulation for short, will come into force and thus become one of the central components of the ESG regulations of the EU. The ordinance, which is intended, among other things, to increase transparency as to which financial products are more or less “green”, has been widely discussed in the specialist press, from the target setting to implementation. Even if the goal of reducing “greenwashing” is a very sensible one, some private bankers will feel reminded of the introduction of MiFID II and will be slightly or more annoyed: additional regulatory effort with some specifications that are still unclear and have to be implemented at short notice.

Beyond the fulfillment of the minimum regulatory requirements, which cannot be evaded, the question arises for every company as to how it intends to deal with the topic of ESG now and in the future. A minimalist approach would be to include individual sustainable investment solutions in the offer so that the customer can say “we also have something in green” when asked. Even if this approach saves resources and therefore makes sense in the short term, it negates two important points:

ESG is one of the dominant social issues, and thus also a financial market issue, and will develop into the market standard, which can be demonstrated by the growth in AuM, among other things

ESG-related regulations will – regardless of the practicability of their implementation – become massively more important over the next few years, from investment advice to the identification of EU-specific ESG criteria.

If you follow these two theses, a comprehensive orientation and implementation of ESG topics is necessary.

Total ESG transformation is key

A holistic view of the ESG topic means examining the various thematic dimensions – from exclusion criteria to ESG qualities and climate risks to effects on the sustainability goals – as well as developing an idea for their relevance and implementation in the coming years. This is the only way to succeed in using the opportunity to take the investment business onto a new path of growth and profitability in addition to the complex regulations. Such a transformation has many facets from the fulfillment of regulatory requirements, changes in customer contact, implementation in portfolio management, pricing for ESG services and the positioning of one’s own institute, ie how “green” one would like to be.

Key points include:

• The market for “green” systems
• The danger of the “green” bubble
• ESG Portfolio Requirements: Back to Basics

Read the full article, Do good and earn money – how private banking can grow and become more profitable with ESG, on Paddags.com.