ESG Gains Traction With Financial Advisers

Financial advisers are finding that some clients want at least some of their portfolio to be aligned with their ethical beliefs

Morningstar News Team 10 October, 2018 | 7:11AM
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Sustainable investing

For more and more financial advisers, sustainable investing has gone from a niche offering for clients to a mainstream proposition.

Just a few years ago, these advisers say, they would only discuss ESG investing with clients and prospects after they were asked about it. Today, these advisers incorporate ESG strategies into their practice just as they would any other kind of investment strategy, and they’re asking most, or even all, clients about their interest in ESG investing.

This shift, which advisers say has built momentum over the past three years, has coincided with a change in the ESG investment landscape. A decade ago, sustainable investing revolved around exclusionary strategies that avoided certain kinds of companies, so-called “sin stocks,” such as tobacco, alcohol, and gambling.

ESG investing takes a more inclusive approach that looks for companies in every sector that have environmental, social, or corporate governance benefits.  That shift, advisers say, has more resonance with a broader group of clients.

Politics Affecting Investments

At the same time, advisers say the political climate since 2016 has led to a larger group of investors saying they want at least some of their portfolio to be aligned with their personal beliefs and to have the potential to create some positive societal good while attaining  their financial goals.

Along the way, these advisers say, it’s helped open the doors to new avenues of business. They use sustainable investing to differentiate themselves from the competition and build more durable bonds with their clients.

It relates back to the questions of ‘What do you want your money to do? What do you want your wealth to accomplish?’

A number of advisers say the level of interest in ESG investing bears a strong relation to the demographics of the audience, with millennials taking a more active interest in the sustainable aspects of their pensions and investments.

Advisers say the most common question remains: will ESG investing hurt my returns? With a growing body of research showing that ESG investing not only doesn’t hurt returns but can actually improve the risk profile of a portfolio, that discussion is easier to have.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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