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Friday, April 08, 2022
Intergenerational Wealth Transfer | ESG | Sustainable portfolios | Investing | Corporates | Corporate Financial Advisory
What does it mean to be in business today? It’s a question that has lingered in business minds even before the pandemic.
Ethical business practices have been put in the spotlight – and in a world that increasingly holds businesses accountable for their impact on the social and environmental world, what does it mean to be in business today?
The pandemic has forced businesses to answer that question in truly unpredictable circumstances. Forcing them to reconsider their adaptability through changing times deeply and, as the pandemic eases worldwide, businesses must now consider their adaptability going forward.
For many, among other changes, it means embracing good Environmental, Social, and Governance (ESG) practices. But the reason for supporting ESG may have less to do with good business practice and more to do with consumer demand.
For the past two years, Julius Baer’s Global Wealth and Lifestyle Report has shown that High-Net-Worth (HNW) Individuals are increasingly becoming ‘conscious consumers’ and showing more concern for ESG principles.
The report showed that changing habits of conscious consumers are likely to impact three luxury industries – food, fashion, and travel. And perhaps it’s no surprise given the known social and environmental damage caused by consumer habits in these three industries.
Our global meat consumption has caused 70% of the Amazon’s deforestation (to clear way for grazing) and contributes to 18% of greenhouse gases. The fashion industry, particularly fast fashion, accounts for 10% of global carbon emissions and nearly 20% of water waste. And in 2018, travel led to 24% of global CO2 from fuel emissions.
Since knowing this, pushes towards socially and environmentally-friendly changes in business and lifestyle are not new. The 2015 Paris Agreement and 2021 COP26 Summit put climate change at the forefront of international conversation.
As highlighted by Julius Baer, HNW individuals are increasingly becoming conscious consumers, resulting in a change in consumer behaviour that could push businesses to re-think their strategy going forward.
Historically, businesses were not thought to be socially conscious.
When writing on the topic in the 1970s, economist Milton Friedman took the opinion that businesses do not have social responsibility since a business is not a person and only people can have social responsibility.
Instead, the responsibility of business was one of profitability, and the responsibility of a corporate executive was to its employees.
Even until today, the article has been controversially received. For some, it’s the justification they need to believe business owes no responsibility to society. For others, it goes against their strong belief that businesses must have social responsibility.
While the debate itself might not be settled, the global narrative has undoubtedly shifted just as much as the world has. Since Friedman’s paper, we have seen a rise in globalisation, an end to the Cold War, the introduction of information technology and global connectivity, a global financial crash, increasing devastation caused by climate change, a recent pandemic…
Even more, a new generation has been raised in amongst this change. And now, that generation doesn’t question corporate social responsibility – they demand it.
When Julius Baer was commenting on conscious consumerism in their 2020 Global Wealth and Lifestyle Report, they noted that the movement coincides with the ‘great wealth transfer’ of recent times.
Baby boomers are expected to transfer $30 trillion of wealth to the next generation – a generation that is much more socially and environmentally aware. That means that significant wealth will be in the hands of consumers who want to use it wisely.
Research from Accenture showed that around 67% of HNW millennials believe investments are a way to show their social, political, and environmental value, and that 90% will likely add more allocations to responsible investments.
Knowing this, Private Banks are taking note.
Singapore’s DBS set up the Wellington Global Impact Fund, a global equity fund that seeks long-term return by investing in ‘impact’ companies taking on some of the biggest global challenges posed by the United Nations’ Sustainable Development Goals. The fund is aimed toward the city-state’s wealthiest investors, which is a demographic that is getting younger.
We started by asking, ‘what does it mean to be in business today?’
Since consumer demand has always been the driving force behind business, perhaps Forbes’ variation of the question is better suited. They told businesses to ask themselves one question – what will consumers care about in five, or even 20, years’ time?
To begin with, consumers in five-, ten-, or twenty-years’ time will be millennials, gen-z’s, and all following generations. Their consumer habits are those that businesses ought to be paying attention to for the long-term.
Furthermore, since younger generations have put pressure on businesses and governments to do more for ESG, more regulations have been introduced making it harder for companies to hide bad-ESG efforts.
Bodies such as the International Sustainability Standards Boards (ISSB) and the Taskforce on Climate-related Financial Disclosure (TCFD) will not necessarily make it punishable to neglect ESG standards. But they will make business ESG efforts much more transparent, which could be more damaging in the court of public opinion.
From a strategy perspective, evidence also shows that companies who take their ESG-standard seriously tend to be more forward-thinking, more innovative, and have improved risk management.
It also makes them more desirable businesses for consumers to go to.
So, with all this said, one thing is clear – HNW individuals are embracing conscious consumerism and are thinking ahead of the curve.
Whether you’re an individual looking for sustainable investments or a business owner looking for strategic guidance on how to embed ESG practices, we offer holistic solutions that can future proof your financial plan.
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