This article examines how ESG has transformed from a peripheral concern to a central business imperative, with major financial institutions committing billions to sustainable solutions. Influenced by regulatory pressure, changing consumer preferences, and recognising sustainability, we track the rapid rise of ESG factors in corporate strategy over the next 12 months.

Picture this: A Fortune 500 CEO, once solely focused on profit margins and market share, passionately discusses carbon neutrality and social justice in a board meeting. It is not a scene from a futuristic novel but the new reality of corporate Wealth Management. Environmental, Social, and Governance (ESG) factors have stormed the bastions of business, transforming boardrooms from profit-centric war rooms to hubs of sustainable strategy. This seismic shift has left many scratching their heads, wondering: How did we go from "greed is good" to "green is great" seemingly overnight? Through this article, we unravel the mystery behind ESG's meteoric rise, exploring why companies are suddenly scrambling to prove they are not just making money but making a difference. This could signify the ‘rise of corporate conscience,’ where doing good is the new bottom line.

Which is driving more: Regulation, customer preference, or sustainability-led growth?
A complex interplay of factors drives the rise of ESG, but three stand out:

1. Regulatory pressure: Governments worldwide are implementing ESG regulations at an unprecedented rate. According to ESG Book, ESG regulation has increased by 155% over the past decade. The European Union's Corporate Sustainability Reporting Directive (CSRD) and the UK's Sustainability Disclosure Requirements (SDR) are prime examples of this regulatory push. The SEC's proposed climate disclosure rules in the US signal a similar trend, potentially affecting thousands of public companies.
    
2. Customer preference: Consumer demand for sustainable products and services is surging. PwC's Global Consumer Insights Pulse Survey reveals that 88% of consumers in India are willing to pay a premium for products that are produced or sourced locally or made from recycled, sustainable materials. This trend is not limited to developed markets; emerging economies are also shifting towards sustainability-conscious consumers.
    
3. Sustainability-led growth: Companies recognise that ESG initiatives can drive business growth. Morgan Stanley's commitment to mobilise US$1 trillion for sustainable solutions by 2030 exemplifies how sustainability is becoming a core business strategy. Unilever's Sustainable Living Brands, which grew 69% faster than the rest of its business in 2018, further illustrates the potential for sustainability-driven growth.

While all three factors are significant, customer preference is the primary driver. The shift in consumer behavior, particularly among millennials and Gen Z, forces companies to adapt or risk losing market share. A study by First Insight found that 62% of Gen Z prefer to buy from sustainable brands, on par with Millennials.

Is it a Fad or Here to Stay? The evidence strongly suggests that ESG is not a passing trend but a fundamental shift in how business is conducted:

1. Long-term regulatory commitment: Implementing comprehensive ESG regulations like the CSRD, which will affect around 50,000 entities in the EU, indicates a long-term commitment to ESG principles. The global nature of these regulations, from the EU to China's ESG disclosure requirements, suggests a worldwide shift towards sustainable business practices.

2. Investor pressure: ESG has become crucial for raising capital. The growth of sustainable fund assets to US$2.24 trillion in Q2 2021 demonstrates that investors increasingly prioritise ESG factors. BlackRock, the world's largest asset manager, has made sustainability its new standard for investing, further cementing ESG's importance in the financial world.

3. Systemic risk management: Climate change and social inequalities are increasingly recognised as systemic risks. Companies that fail to address these issues may face significant long-term challenges. The World Economic Forum's Global Risks Report consistently ranks environmental risks among the top global threats, underscoring the need for businesses to take ESG seriously.

4. Technological advancements: Developing technologies that enable better ESG data collection, analysis, and reporting makes it easier for companies to implement and monitor ESG initiatives. This technological infrastructure supports the long-term viability of ESG practices.

Given these factors, it is clear that ESG is here to stay and will likely become even more critical in the coming years.

How does it change the wealth manager's outlook?
The rise of ESG is fundamentally changing how managers approach their roles:

1. Operationalising ESG: Managers must now integrate ESG considerations into every aspect of business operations. This includes supply chain management, product development, and corporate governance. For example, Patagonia's commitment to using recycled materials in its products requires managers to rethink entire supply chains and production processes.

2. ESG literacy: There is a growing need for managers to become ESG literate. Understanding the complexities of carbon footprints, social impact assessments, and governance best practices is becoming essential. This may require additional training or even the creation of new roles within organisations, such as Chief Sustainability Officers.

3. Performance measurement: Traditional financial metrics are no longer sufficient. Managers must develop new KPIs incorporating ESG factors, such as reduction of carbon emissions, diversity and inclusion metrics, and ethical supply chain practices. Companies like Danone have even linked executive compensation to ESG performance, highlighting the importance of these metrics.

4. Regulatory compliance: With the increased ESG regulations, managers must stay informed about evolving requirements and ensure their organisations are compliant. This may involve significant changes to reporting practices and internal data collection processes.

5. Stakeholder engagement: ESG requires a more holistic approach to stakeholder management. Managers must engage with broader stakeholders, including local communities, NGOs, and sustainability-focused investors. This expanded stakeholder view can lead to more robust risk management and new opportunities for collaboration and innovation.

6. Long-term strategic planning: ESG considerations push managers to think more long-term. Climate change and social equity require strategies extending well beyond traditional business planning. This shift in perspective can lead to more resilient and adaptable business models.

Conclusion
The sudden importance of ESG represents a paradigm shift in business. According to a recent Morgan Stanley Institute for Sustainable Investing report - ‘Sustainable Signals’ - 85% of individual investors are interested in sustainable investing, and 80% believe that companies with good ESG practices may be better long-term investments. Additionally, wealth managers offering ESG investment options have seen increased client satisfaction and a rise in wallet share as clients allocate more assets to ESG-aligned portfolios.

The influence of ESG in a climate of regulatory pressure and changing consumer preferences is not a fad but a fundamental business change. Wealth managers require a new set of skills, a broader perspective, and a commitment to integrating ESG principles into every aspect of their work. Those who adapt to this new reality will be well-positioned to lead their organisations into a more sustainable and prosperous future, creating value not just for shareholders but for society and the planet as a whole.