Message from America: US advisers can’t ignore ESG

Liz Skinner, special projects editor of ESG Clarity in the US, shares how advisers can talk ESG with clients, and how to spot greenwashing

As a booming year for ESG investing wraps up, US investment professionals share what’s in store in the space, and how financial advisers can engage with their clients on ESG issues.

At our recent event, hosted in collaboration with the United Nations Office of Partnerships, sustainable investing pioneer Amy Domini, founder of Domini Impact Investments, reported ESG has reached a level in the US, where financial advisers need to be paying attention. She acknowledged there’s confusion related to differences between ESG, socially responsible investing, impact investing and other terms, but warned not to get distracted by those nuances.

“The point is, do you believe finance has a role? And I do,” Domini said. “It’s very difficult to envision that we can get to ecological sustainability or human dignity without finance taking up the challenge.”

The importance of integrating global goals with asset management is evident in the numbers alone, said Domini, whose firm now manages about $2.3bn.

In the US, sustainable investing assets make up $1 of every $3. That $17trn total in 2019 was a 42% increase over the year before.

It is hard to imagine an adviser would be willing to ignore all that in 2021. But in the US some professionals feel they don’t have adequate knowledge of or trust in socially responsible investments.

Adviser recommendations

Those financial advisers who have embraced ESG in the US have some advice for their financial planning colleagues, which they presented at the 2020 ESG & Impact Forum hosted by InvestmentNews, a sister publication of ESG Clarity US.

 James Frazier, a socially responsible investing adviser at Natural Investments, a firm that focuses exclusively on building ESG portfolios for clients, said advisers shouldn’t try to fake it or take a light approach.

“These investors are very committed, and are good at sniffing out a light approach,” Frazier said.

Haleh Moddasser, managing partner at Stearns Financial Group, said given the popularity of ESG investing, advisers also have to be extra diligent in sniffing out fake or exaggerated ESG claims inside products and strategies.

“Once it became popular, it became easy for companies to just tack on something that said they were green-minded,” she said in a reference to the practice of “greenwashing,” in which funds and companies present themselves as ESG-focused to try and jump on the bandwagon.

At Moddasser’s firm, most of the clients are still allocated to traditional investments and strategies, and she said she has become more sensitive to opportunities to talk about ESG investing.

Talk ESG

“It’s pretty easy to have this kind of conversation,” she said. “When people are interested in ESG, it’s pretty obvious. For example, they might come in and say they are just sick about school shootings and wish there were something they could do.”

Other signs of an interest in ESG investing could be a client who donates to an organisation that plants trees or serves on the board of a food bank. Such mentions could give financial advisers an opportunity to discuss how those interests can be reflected in a client’s portfolio and provide an entry into values-based investing.

“You can get a read on what they’re passionate about,” said Alli Hillgren Warner, chief marketing officer at Beacon Pointe Advisors. “You can use that as a segue to the impact or ESG conversation.”

Anthony Eames, vice president and director of responsible investment strategy at Calvert Research and Management, said delving into a client’s charitable giving or volunteer activities can shed light on whether they want to engage in ESG investing.

With advisers reporting that many more clients are approaching them about socially responsible investing, its recommended that advisers probe clients’ interests in socially responsible investing – or a competitor will. 

“We would definitely advocate that advisers be more proactive in terms of getting to a particular client’s or prospect’s interest in the approach,” Eames said. “It’s a tremendous opportunity for advisers to engage not only more meaningfully with their current clients but it’s a tremendous business-building opportunity as well.”

Liz Skinner is special projects editor at InvestmentNews, a sister publication of Last Word Media