2020 has been defined by the global health pandemic.
Earlier this year, new trends started to take shape and slowly formed into standards that may be here to stay.
In our virtual work environment, being isolated in home offices, there has been an emergence in the financial advisory industry to reinforce the importance of corporate culture.
Advisors who have been paying attention to industry trends may have observed the theme of environmental, social and governance investing, also known as ESG investing, which focuses on investment returns by emphasizing ethical corporate behavior, advocacy on social issues or environmental soundness.
Larry Fink, CEO of BlackRock, stresses the importance of embracing technology and the rise of new investing themes that have defined 2020. “Technology is going to be the most important component in our lifetimes,” Fink told attendees at Charles Schwab’s IMPACT 2020 conference. He encourages us to think about what business growth means going forward for companies, individual employees and clients.
Building Company Culture Remotely
The health crisis has upended the way we do business — from how we interact with clients to the way teams work together — but technology has helped us reorient ourselves. The registered investment advisory industry has embraced the virtual-working model, but with it comes an added layer of difficulty: maintaining company culture when working remotely.
Having an energetic company culture is essential to connect with clients, but also for teams to work closely together and make sure they’re in sync. Building a strong company culture requires commitment from both leadership and employees.
Company leaders have emphasized and reinforced company norms by encouraging more communication so employees at all levels can connect with the company’s vision, values and purpose.
Fink explains the value of maintaining culture and supporting employees. “Culture is probably the most important thing of any organization,” he says.
“How do we make sure that we have that binding culture that connects people to carry on in the same spirit in which they did pre-COVID,” Fink says. This is something businesses need to think about to support the growth of their employees and business.
Fink goes on to explain the importance of the younger generation of financial advisors and their ability to connect to company culture to navigate their careers, see themselves grow with the company and connect with others.
Sustainability Is Becoming Mainstream
In BlackRock’s letter to clients in March, Fink said sustainability should be the “new standard for investing.”
“We are seeing more evidence that climate risk is investment risk,” Fink says.
ESG investing has been growing rapidly this past decade, and now, with the pandemic, it has arguably reached the mainstream. The growth of the sustainability industry has made it easier for investors to build a portfolio with sustainable funds, and ESG assets have become an area of the market in which investors can look for returns.
BlackRock is focusing on sustainability by offering more investing products in this sector in the form of exchange-traded funds and index funds that track well-known benchmarks for investors to access this market and ultimately incorporate them into their investment portfolios.
Market activity also shows that investors are no longer responding to ESG investing as a fad or trend, but rather they’re including sustainable assets as part of their investing strategy.
In 2019, there were inflows of $55 billion into global sustainable ETFs and index mutual funds, reaching $220 billion in global sustainable assets, and $14.8 billion in the first quarter of 2020, according to BlackRock’s paper, “Reshaping Sustainable Investing” — all this while investors were selling off their assets to build up their liquidity position and equity funds were experiencing massive outflows in the earlier half of this year.
Investors may also find ESG investing appealing because of its durable performance that may be brought about by a company’s sustainable best practices. In a BlackRock report, the firm estimates “certain ESG strategies may potentially help investors manage market downturns since they tend to emphasize stable businesses.”
Compared with earlier in 2020, when several market sectors were experiencing losses as a result of the market downturn, ESG has proven to be resilient. BlackRock’s research shows that in the first quarter of 2020, 94% of globally sustainable indices outperformed their parent benchmarks. “It aligns with the resilience we have seen in sustainable strategies during prior downturns,” BlackRock noted in a report, “Sustainability investing: resilience amid uncertainty.”
ESG investing is poised for further growth coming out of the health crisis. Investors have shown increased interest in sustainable funds in the wake of the pandemic and asset managers are following suit. There is a growing demand for ESG data from asset managers globally to better asses the scale and scope of its rise.
Investors are trying to adapt to this year’s challenges by seeing how they can readjust their portfolios for increased returns or to manage risks, and there is a need for advisors to be there to help.
There are many important factors to prioritize, such as the client-advisor relationship, company culture and employee development, to name a few. One is no more important than the other, but leaders must determine the best way to align them for advisory success.
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BlackRock CEO Larry Fink: Sustainability Is Becoming Mainstream originally appeared on usnews.com