The Great Wealth Transfer pt. 2/3: A launchpad for sustainable investment

As the monumental Great Wealth Transfer picks up pace and a whopping 30% of global wealth is being passed on to the next generation within the coming decade, it’s not just fortunes that are shifting but priorities too.

This is the second article in our three-part series about The Great Wealth Transfer.

The digital divide discussed in the first part of this series is paralleled by a 'sustainability divide’, and so, we shift our focus from digitalization to sustainable investment.

The fact is, the incoming generation of wealth inheritors isn't just inheriting assets—they're also inheriting a responsibility towards the planet and society, and this is increasingly shaping their preferences when it comes to wealth management.

It also has to do with identity. When I meet nextgens, one of the things they’re most preoccupied with is their identity. Their predecessors largely built their identity on their business. But the next generation is inheriting a fortune they didn’t create themselves, and now they have to figure out what they want to build their own identity on and how to make meaning of it all.

What’s common for many of them is that they want to create a long-lasting legacy that’s about more than profit.

In this article, we zoom in on the sustainability trend and its impact on wealth managers, family offices, and advisors.

A new investment compass

The Great Wealth Transfer is not merely an exchange of wealth but also a transformation in the ideals governing that wealth.

A new wave of investors is set to redefine the priorities of wealth management. Unlike their predecessors, whose investment decisions were often guided by traditional financial metrics alone, the next generation is looking to align their portfolios with their ethical values.

ESG and sustainability are not just buzzwords to these investors.

Globally, 55% of HNWIs have expressed that investing in causes with positive ESG impacts is a crucial objective in wealth management, showing that a shift in priorities is already happening.

In North America, millennial HNWIs show a marked preference for ESG investing compared to individuals over 40, highlighting a generational shift in investment paradigms.

My guess is those 55% will increase markedly during the following decade.

A new frontier for wealth managers

Let's get real for a moment. Sustainable investing isn’t just about painting your portfolio green to sleep better at night. It’s not merely about risk management either—although ESG factors certainly influence financial risks and returns—but about aligning investment practices with broader societal values.

It’s about ensuring that your green goes to work in ways that are as profitable as they are purposeful. Think of it like choosing a hybrid car over a gas guzzler—not only does it save on emissions, it's also a savvy choice given rising fuel prices.

In my opinion, it’s not one or the other. I believe that profit and purpose will go hand in hand in the future because companies have to adjust to the reality we live in to thrive in the long-term. In fact, studies indicate that this is already reality in many cases.

In a meta-study, NYU Stern Center for Sustainable Business  and Rockefeller Asset Management analyzed over 1,000 studies. Among the studies focusing on the relationship between sustainability and performance, 59% indicate that ESG investments yield similar or better results than conventional investment approaches. Only 14% show negative results. (You can read more about this in our article Does ESG investing pay off?)

Strategic adjustments in wealth management

However, integrating sustainability into wealth management is not without its challenges.

Nextgen investors expect their wealth managers and advisors to give them the data and insights they need – including when it comes to sustainability. Nonetheless, approximately 40% of wealth managers report that obtaining accurate ESG impact data is a complex task, underscoring a significant gap between investor demand and current capabilities.

Approximately 40% of wealth managers report that obtaining accurate ESG impact data is a complex task.

Admitted, it’s not easy to navigate the ESG data jungle, and its often grey on grey, but that doesn’t mean we shouldn’t take on the challenge.

It’s key that you find a partner who can deliver quality sustainability metrics to you and your clients. Modern wealth platforms are crafted with nextgen expectations in mind, integrating sleek designs with robust functionality. They adopt a broader understanding of wealth and include sustainability metrics in their reporting.

If you don’t want to get left behind, you need to think twice before choosing your wealth platform. It’s an important strategic choice that will help determine whether you thrive or dive after the wealth transfer.

By teaming up with modern tech partners, wealth managers can not only meet but exceed the expectations of their future clients when it comes to the digital experience and sustainability insights.

But it’s not only about reporting. Wealth managers must deepen their understanding of sustainable investment opportunities. They must become as fluent in discussing carbon footprints and social equity as they are in discussing bonds and equities.

Wealth managers must become as fluent in discussing carbon footprints and social equity as they are in discussing bonds and equities.

The way I see it, one of the ways to make that happen is to ensure that sustainability becomes an integral part of financial educations. People in the financial world need to learn from the very beginning that risk and return are not the only important parameters to look at.

Many wealth managers and advisors almost get a headache just talking about ESG. But that’s only because they didn’t “grow up with it” and still see it as an add-on.

We have to stop doing that and start considering ESG and sustainability parameters as fundamental in the world of finance. We have to start seeing profit and purpose as interdependent goals and not opposites.

That’s also why we’ve chosen to make sustainability metrics an integral part of all our reporting instead of offering them as an add-on.

Conclusion: Redefining wealth management for a sustainable future

As this monumental wealth transfer unfolds, it’s clear that the legacy left by the next generation will be measured not just in dollars but in the societal and environmental impact of their investments.

It’s about ensuring that investments aren’t just profitable, but also purposeful.

Sustainable investments are not merely about avoiding risks or managing regulatory pressures; they're about creating value.

From green bonds and sustainable real estate to impact investing that targets specific social issues, the avenues for engaging in meaningful, value-driven investments are expanding. This expansion is not just a trend but a robust pathway to reshaping the financial landscape to be more resilient and responsive to global challenges.

For wealth managers, the message is clear: evolve your practices and pick the right partners or become irrelevant when the next generation takes over a third of the global wealth.

It seems to me that the rising tide of wealth transfer isn’t just a financial phenomenon but a launchpad for embedding sustainability into the core of wealth management.

Let’s redefine wealth management for a sustainable future.

P.S. Don't forget to read the final part of the series where I share my thoughts on the rise of the trusted advisor.

Sources

Campden Wealth: The North America Family Office Report

Capgemini: World Wealth Report

Deloitte: 10 Disruptive trends in wealth management

UBS: Global Family Office Report

&Simple: Simple Software Technology Review

&Simple: Simple Looking Forward