With more investors asking questions, it’s getting harder to dismiss values-based investing out of hand
With ESG investing gaining traction among both investors and asset managers, formerly skeptical advisors are starting to relent — although they still have many questions and doubts.
In the latest survey on social investing by Nuveen, 36% of advisors said they offer portfolios that screen for ESG factors to clients in 2018, while 51% said they discuss the idea as a potential investment option — up from 41% in 2017, reported WealthManagement.com.
And when gauging advisors’ negative feelings on ESG, the study found just 17% who held such sentiments, compared to 28% who said the same thing in 2017; those who were indifferent represented 40% of last year’s respondents, and more than half of those in 2017.
While that’s good news for the industry overall, pockets of resistance remain. As sustainable finance consultant and a former certified financial planner Paul Ellis related to WealthManagement.com, the “stale, male, and pale advisor community” — predominantly men with at least 10 years of industry experience who own successful practices — have not much changed their attitudes toward sustainable and impact investing.
“They are very secure in their habits, their approach to practice management and the investment strategies that they used to build their practices in the first place,” Ellis explained.
The question of performance presents another hurdle for ESG fund adoption. While a lot of evidence has been advanced, the connection between ESG investing and outperformance hasn’t been made conclusively. For plan sponsors who pursue returns to safeguard their member’s future financial security, that’s tantamount to a red light on green investments.
Notwithstanding doubts on returns, more advisors are receiving questions from clients on ESG — and they don’t always know how to reply. “They used to give it the wave-off, but you really don’t want to do that,” said Jon Hale, head of sustainability research at Morningstar. “More advisors are realizing that they need to have answers to these questions—and that if they do not they could lose the client, because it will call into question a lot of things about the advisor.”
Hale argued that when it takes ESG into account, investing becomes a more holistic endeavour. “Advisors are people too, and they want to make their work more meaningful. And if you really care about your clients’ goals and values, you build trust by focusing on what concerns them.”
Sharing his two cents, Ed Farrington, head of retirement at Natixis Investment Managers, said that ESG fund providers’ challenge of the moment is to help advisors and plan sponsors realize how ESG can “align very well with fiduciary responsibilities.” He also noted gale-force tailwinds from millennial participants as he argued for ESG’s future as a fixture in workplace plans.
“Most of them say they would start investing or increase their rate of investment if there were more sustainable options in their plans,” Farrington said.
And for many advisors who still entertain the notion of a trade-off between performance and responsible investing, Farrington asserted that facilitating client conversations on ESG can still provide a material edge.
“If you’re not going to focus on this yourself, make sure you have at least one younger advisor in your practice who does,” he advised industry professionals.