Largest recurring study of High Net Worth Investors finds those in China, Brazil and the UAE have highest rates of adoption in sustainable investing; US and UK have lowest levels
UBS in mid-Sept 2018 launched the latest edition of its UBS Investor Watch report, “Return on Values”, the largest recurring global study of High Net Worth Investors (HNWIs)* in the world.
The study reveals stark differences in the sustainable investing landscape. Emerging economies, such as China, Brazil and the U.A.E, indicate they have the highest rates of adoption of sustainable investing (60%, 53% and 53%), while investors in the U.S. and the U.K. lag far behind (12% and 20%). However, despite lower adoption, sustainable investors in the U.S. have the highest average allocation, with 49% of their portfolio assets dedicated to sustainable investments.
“Investors see sustainable investing as the way of the future. Across all ages, wealth levels and regions, many believe sustainable investing will become a more mainstream approach over time,” said Paula Polito, Global Client Strategy Officer, UBS Global Wealth Management. “A majority of the investors surveyed believe that sustainable investments are wise investments and see no need to compromise their personal values for financial returns.”
Sustainable Investment Gap
A significant majority (65%) of the world’s wealthy investors think it’s very important to use their time and resources to help create a better planet. As a result, investors are actively aligning their spending decisions with their personal values (81%) and paying more for products from companies with sustainable practices (69%).
However, these choices in everyday life aren’t always translating into investment decisions. Globally, only a minority of investors (39%) hold sustainable investments in their portfolios [with at least 1% of their investable assets].
Unknown Impact and Confusion Hold Investors Back
The study finds that among non-adopters, 72% say quantifying impact is the biggest barrier. Nearly as many (68%) believe that sustainable investment options are not firmly established, noting short track records and a lack of well-known sustainable companies.
Confusion about terminology is compounding the issue. Seven in ten investors (72%) find the language of sustainable investing perplexing, and less than half (47%) are very familiar with the term itself. Similarly, investors make little distinction between the three major sustainable investment approaches: exclusion, integration and impact investing.
In the midst of this confusion, it is clear that Advisors have an important role to play, with investors listing the advisory community as the biggest influencer in their investment decision making, followed by family and friends.
No Trade-off Between Personal Values and Returns
The study shows that very few investors expect to sacrifice returns when investing sustainably. In fact, 82% of investors believe the returns from sustainable investments will match or surpass those from traditional investments. They view sustainable companies as more responsible, better-managed and more forward thinking – thus, good investments.
Return expectations vary significantly between countries. In China and Brazil, where the adoption of sustainable investing is high, over 70% of investors believe sustainable investments will outperform traditional investments. In the U.S and the U.K., this figure is just 19% and 27% respectively.
“Education on the benefits, impact, and competitive returns is going to have to be accelerated to bring sustainable investing from niche to normal,” said Mark Haefele, Chief Investment Officer at UBS Global Wealth Management. “Today, that is both the challenge and the opportunity.”
Sustainable Investing has Strong Momentum
Despite remaining deterrents, investors expect sustainable investing to grow significantly in popularity, from 39% adoption today to 48% over the next five years. In fact, 58% of investors expect sustainable investing to become the “new normal” in 10 years. Investors in the U.A.E., China and Italy are the most convinced sustainable investing will be mainstream, while only one third of investors in the U.S. and the U.K. agree.
Worldwide, younger investors and those with the greatest wealth are the leading adopters. Seven in ten young investors [18-34 years old] expect sustainable investments to outperform traditional investments, compared to only one third of investors who are age 65 or over. Among the ultra-rich [with at least $50 million in investable assets], the average allocation to sustainable investments is more than half of their portfolio (54%), compared to an average of 36%.
To encourage further adoption, UBS has committed to raise at least USD 5bn in impact investments over five years, in support of the UN Sustainable Development Goals. At Davos 2018, UBS announced the first 100% sustainable cross-asset portfolios for private clients, targeting market rates of risk adjusted return, as well as positive social and environmental outcomes.
The key conclusions from all 10 markets can be found on the main UBS Investor Watch website at – http://www.ubs.com/investorwatch-wm
* Wealthy investors are motivated by sustainable values (65%) however globally, only a minority (39%) hold sustainable investments in their portfolios
• Investors in China, Brazil and the U.A.E. are the most likely to hold some sustainable investments (60%, 53% and 53%)
• Those in the U.S. and the U.K. trail behind (12% and 20%), but low adoption is partly offset by higher than average asset allocation (49% and 38%)
• Confusion continues to hold investors back—72% of investors find the terminology around sustainable investing perplexing, and lack of measurable impact is the biggest barrier to investing sustainably
• Globally, investors expect sustainable investing to grow from 39% participation to 48% over the next 5 years, and a majority (58%) expect it to become the norm in a decade
• 82% of all investors surveyed expect sustainable investments to match or outperform traditional investments over time
About the Research
* The cited research was conducted among more than 5,300 millionaires with at least $1 million in investable assets (excluding property). The global sample was split across 10 markets: Brazil, China, Germany, Hong Kong, Italy, Singapore, Switzerland, UAE, the UK, and the US. The research was conducted between June 2018 and August 2018.
About UBS Global Wealth Management
As the world’s largest wealth manager, UBS Global Wealth Management provides comprehensive advice, solutions and services to wealthy families and individuals around the world. Clients who work with UBS benefit from a fully integrated set of wealth management capabilities and expertise, including wealth planning, investment management, capital markets, banking, lending and institutional and corporate financial advice.