Future Returns: How Goldman Private Wealth Clients Are Moving Toward Impact

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Goldman Sachs Private Wealth Management’s clients have been on a tear since 2015 to shift their assets into impact investing and environmental, social, and governance strategies. 

That year, Goldman Sachs Asset Management bought Imprint Capital, a dedicated sustainable investing firm, and brought on its co-founders, John Goldstein and Taylor Jordan. The private wealth group had little in the way of ESG and impact solutions to offer clients at the time, but that changed with the acquisition, says Abigail Pohlman, global head of Goldman’s private wealth division’s Sustainable Solutions Group.

Today, Goldman’s private wealth investments in these strategies have grown 80-fold to about US$30 billion. While that’s a lot, Pohlman says it’s only about 6% to 8% of the group’s global assets under management. More significant, she says, is that 20% of private wealth clients (all with at least US$10 million in investable assets) own some ESG-dedicated assets, and that 50% of the firm’s largest clients—the ultra wealthiest—are investing sustainably. 

ESG generally refers to active portfolio management strategies where managers select companies with the best environmental, social, and governance practices.  Impact investing generally refers to strategies intended to create a specific positive environmental or social outcome. 

Driving a surge of interest in these responsible investing strategies, particularly among the wealthiest families, is their concern over legacy, and what they are leaving as their place in the world, Pohlman says. 

It’s also driven by the “next generation” after the wealth creators or holders—Millennials and Generation Z. They are either initiating the conversation because of their own values, or because the previous generation discovered they can interest their children in investing if they gear the conversation to sustainable solutions, she says. 

Regulatory factors are also driving interest, as regulators in Europe and the U.S. place increasing scrutiny on corporate ESG practices, and as governments in Europe and the U.S. seek to lower carbon emissions. More companies, too, are focusing on operating sustainable businesses, from paying attention to their supply chains through to the products they make, to how they operate in communities and take care of their employees, Pohlman says. 

Penta recently spoke with Pohlman about how clients are approaching investing responsibly through public and private markets.

Making a Call on Passive Investing

One option for investors is to align a passive stock portfolio—which might include an ETF that tracks the S&P 500 index, for instance—with their values. For investors who want to sleep at night knowing that they aren’t investing in “bad” companies, and can cheaply and efficiently do this, such “values alignment” may make sense. 

But Pohlman believes other investors will say, “why bother?” The amount of impact that can be had through index strategies is minimal. “The goal of passive public equity is not about performance, it’s not about ESG, it’s about cheap, efficient exposure to a benchmark,” she says. 

Instead of eking out only bits of value alignment through passive strategies, some investors prefer to get their public market impact exposure through active managers that select companies with good ESG practices. 

Those that go this route are not actually taking a values approach to investing either, however. ESG integration, as this strategy is called, is about “managing risk and driving performance,” she explains. It’s not about having “rules-based, hard-and-fast exclusions” for, say, manufacturers of guns or tobacco, or creating a specific positive result, such as creating affordable housing.

This is where Goldman may advise an investor seeking to have greater impact to look for thematic managers in public equity or in fixed income where results can be more tangibly measured. Clients can invest in green, social, or sustainable bonds, for instance—debt securities issued to finance specific projects. 

“It’s not about what you’ve avoided but it’s about what you are investing in—the solutions, products and services associated with individual companies,” she says. 

There are other clients, however, who don’t see value in investing in public companies that are already doing well against ESG indicators. These investors are choosing instead to seek out companies they can actively improve through shareholder advocacy. 

While this route can be challenging, Pohlman says it’s not any more difficult than any fundamental active management and it may be particularly relevant as investors shift to value stocks from growth stocks. It “will be an interesting place to see how ESG plays a role,” she says. 

Climate Transition and Inclusive Growth

Goldman clients who want to invest in specific themes—whether in public or private markets—do so within two broad buckets: climate transition and inclusive growth. 

Private markets aren’t for everyone, but for those who invest in private equity or venture capital, these sectors can allow for investing in managers focused on themes within these buckets. 

Private funds can also be a good place to start for some families as it’s a lot easier to agree on a single strategy “to lean into than to argue over which company or sector to exclude from your large cap U.S. equity separately managed account,” Pohlman says. Private equity investing also requires annual evaluation, so a family can regularly check on the capabilities of these managers. 

Goldman targets thematic investment opportunities in nine areas. Themes related to climate transition are: clean energy; sustainable transport; sustainable food and agriculture; waste and materials; and ecosystem services. Themes related to inclusive growth are: access and innovation to healthcare; access and affordability of education; financial inclusion; and communities, a broad category that includes affordable housing, community wealth, and access and opportunity. 

The same themes are used across Goldman to track firm-wide commitments to sustainable finance, Pohlman says. Goldman’s goal is to finance, invest, or advise on US$750 billion in assets across the themes by 2030; it had reached about US$300 billion at the end of 2021, according to an annual sustainability report.

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