How are ESG issues impacting the wealth management sector today? What has been achieved so far, what are the opportunities and threats, and what is still to be done?
Author - Reto Ringger – Founder and CEO of Globalance Bank
Many companies boast about their climate-friendly practices. Almost every bank offers some sort of ESG product. But how many of these actually stand up to scrutiny? What makes product A sustainable? Are all the links in the supply chain of product B aligned with the standards of socially responsible practices? To allow investors to remove this lack of transparency in the sustainable investment market, Globalance has launched the Globalance World platform: an innovative tool for the visualization of all relevant data about the economic, societal, and environmental impact of either individual companies or whole portfolios, as well as their risk and profitability.
What are our options if we want to invest in a sustainable way? What are the key indicators to make our finances fit for the future? Do we want our money to go to the creation of innovative solutions instead of any destructive exploitation of the planet?
Countless banks have stepped up and have trimmed their products for ESG. Sometimes this trimming remains rather superficial, but that is enough to call a product a "Climate Aware Fund" or an "Impact Fund." According to Swiss Sustainable Finance, an industry association for sustainable investments, sustainable investments in Switzerland have grown from CHF 390 billion in 2017 to CHF 1,520 billion in 2021. However, sustainable does not necessarily mean sustainable. The financial products are competing in the huge market of sustainable investments and differ significantly – in their approach, their understanding of sustainability, and in their terms of costs as well. Some banks do not even share crucial information of which companies they are actually invested in. This is a lack of transparency similar to the mentality of the banking sector in the 1980s and does not match the criteria of investors who are expecting transparency from a modern, future-oriented bank today. That's why we created Globalance World. Think "Tripadvisor" and "Google Earth" for investing, rolled into one. Globalance World is a digital globe that allows investors to see the impact and sustainability of their investments.
What are the positive contributions of my financial investments to the economy, society, environment, and especially to the climate?
With the help of interactive infographics, Globalance World helps the user to understand the complex interrelationships of financial investments and their effects in the real world even better. Platform users are able to evaluate their entire portfolios - whether it is a global index such as S&P 500 or their portfolio – and can set clear investment priorities and deep dive and examine a specific company, such as Unilever, BASF, or Allianz. Today Globalance World is able to visualize the operational impact of approximately 8,000 companies from all over the world. Portfolios, indices, and companies are rated based on different criteria in four dimensions: climate, footprint, megatrends, and financial performance. So, in a nutshell, the platform provides innovative data visualizations and interactive design.
and can set clear investment priorities and deep dive and examine a specific company, such as Unilever, BASF, or Allianz. Today Globalance World is able to visualize the operational impact of approximately 8,000 companies from all over the world. Portfolios, indices, and companies are rated based on different criteria in four dimensions: climate, footprint, megatrends, and financial performance. So, in a nutshell, the platform provides innovative data visualizations and interactive design.
So, this earth warming potential value is the result of an intelligent approach: for a basic calculation, the model considers the relevant CO2 emissions of a company. First, direct emissions (Scope 1). These emissions came from the direct burning of fossil fuels, e.g., using a diesel generator, the company's own vehicle fleet, or, in the worst case, a coal-fired power plant. Second, indirect emissions (Scope 2), which represent the purchase of energy. So any energy procured for, let’s say, heating or cooling a shopping center is summarized in this category. Third, emissions which can be related to a company's value chains. These, of course, can be quite complex and can have multiple levels and dependencies, which made the data collection on these Scope 3 emissions very tricky. Scope 3 emissions are generated either on upstream or downstream along the value chain. For example, purchasing rubber for tyres at Continental triggers CO2 emissions upstream. The CO2 emissions of a Volkswagen vehicle with a diesel aggregate during its entire lifetime would be an example of downstream emissions.
The measurement of business-related emissions is a science in itself. Just as accounting (think of standards like IFRS or US GAAP) has evolved based on a precise set of rules over the last 30 years, the methods of measuring emissions are becoming more accurate as time goes by. The measurement is based on the global standard of the GHG Protocol, which is based on coordinated efforts of the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD). It is considered to be the widely established standard for the compilation of greenhouse gas balances.
Globalance World provides all this data and visualizes it in an easily accessible and understandable way. In a second, users can understand intuitively the message the data is telling them.
The reactions of customers, companies, and the media since the launch in November 2020 have been impressive – so the related demand was as well. In a nutshell, this innovative investment tool provided by Globalance World is offering you real transparency, especially today, where more things seem to be sustainable and future-proofed than they actually are.
Figure 1: Globalance World (FTSE 100) - World Impact View
Figure 2: Globalance World (FTSE 100) - Asset City View
What solution(s) does your company offer the market that addresses ESG issues, and how do they help wealth management firms manage their increasing obligations in this area?
Author - Pius Stucki – Founder and CEO of Etops Group AG
The sustainability aspect is one of the three key factors that are having a significant impact on wealth management today: the need for further digitalization, the need to address sustainability issues, and the continuing increase in regulatory measures.
The climate debate has clearly revealed that people around the globe are becoming more aware of sustainability issues. Numerous events and media reports, as well as appropriate financial products, clearly show that the financial industry is also prepared to adapt to this change and to provide investors with the best possible support in consciously orienting their investments towards sustainability. For the future, it will be important that asset management solutions not only deal with traditional financial market data but also consider and interpret figures from the sustainability sector. Companies such as Etops, having been in the market for years, support consolidating, analyzing, and visualizing the extensive data material.
Digital evaluation and analysis solutions that enable banks to provide transparency for existing individual or consolidated investment portfolios are becoming crucial and are allowing investors to evaluate individual positions or consolidated portfolios of banks or asset management companies according to ESG daily. These solutions are also used to analyze investment positions from different custodian banks under ESG criteria on a daily basis for highnet-worth clients. With the market shift towards ESG investments, there is an increasing demand for a comprehensive ESG service that can map asset portfolios and be integrated into strategic asset management and investment advice.
The trend towards sustainability also enables wealth and asset managers to attract new client segments and provides an improved basis for successful discussions with future generations of their clients. ESG has therefore become a common term in the financial industry, and wealth managers need to understand new key measures such as footprint values, megatrend exposures, and climate impact. This will require additional data and new visualization approaches.
As a specialist for tailor-made reporting and data visualization solutions based on information retrieved from multiple sources, Etops created and implemented a completely new information approach in collaboration with the Zurich based Globalance Bank, which specializes in sustainable investments and advises private clients, families, and foundations on how to invest their assets in a future-oriented way. The two-fold approach contains information provided in printable format and fully digitized formats as well.
Figure 3: Etops Sustainabilty Solutions
Globalance Bank, which specializes in sustainable investments and advises private clients, families, and foundations on how to invest their assets in a future-oriented way. The two-fold approach contains information provided in printable format and fully digitized formats as well.
The digital approach we created was innovative and enabled a unique visualization of portfolios in the context of investments and sustainability by combining financial data with sustainability data and articles that focus on climate topics and specific megatrends around the globe. The browser-based solution offers both investors and interested parties a new perspective on the risks and opportunities of investments in the context of environmental, social, and economic impact (footprint). Additionally, it shows the impact on climate change, exposure to megatrends, and all relevant financial information such as performance, asset allocation, and more. Etops developed and implemented the complex backend using multiple data sources and aggregated the data in the required way in order to allow the frontend, with support from a company specialized in 3D data visualization, to generate unique, appealing, and comprehensive views and insights. This innovative data visualization approach for sustainable investments has been live since the end of 2020.
Etops designed the architecture, developed the backend with all its aggregations, consolidations and computations, and enabled the results to be provided to the frontend. Etops implemented the whole system, both backend, and frontend, with a Swiss IT center and will operate and support the system in the future. Based on the knowledge and experience collected in various projects, Etops and axeed can offer standardized solutions for ESG reporting, both in printable form and via fully flexible dashboard solutions, with all slice and dice capabilities that modern data analytics tools can offer. Going forward, Etops will continue to focus on sustainability topics given the forthcoming EU regulatory changes and will integrate ESG analysis into its Portfolio Management Solution offering, combining it with investment proposals and portfolio optimization features. The cooperation with Globalance Bank will strengthen Etops position as a leading provider of ESG based solutions for the wealth management sector as well.
This article was originally part of our Wealth Tech Views ESG Report. Click here to access the full report.
