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Investors who want to make a difference in the world often turn to environmental, social and governance (ESG) investments as a simple way to make an impact. However, those opportunities don’t always align with traditional investing advice. Some clients might be skeptical about the prudence of putting their money behind ESG causes. Here are some ways you can help skeptics see the value of these investments.
1. Assess the Client’s Investing Style
In a report in the Journal of Cleaner Production, researchers looked at ESG investing and its growth during the last 10 years. They found there were five basic attitudes investors had about ESGs. Where they fell on the spectrum determined their willingness to push money into sustainable stocks.
Most people agreed they didn’t want their money to go to bad things. No matter the investor’s attitude, most wanted more transparency and were willing to shift funds to less controversial things.
2. Explain the Benefits of Long-Term Profitability
Ideally, your clients’ portfolios are a mix of short- and long-term payouts, creating a return that grows their money over time. ESGs are often seen as a lengthy game. Returns may be minimal at first and grow rapidly as the endeavor gains supporters. Companies that put sustainability first will be better prepared for any changes in regulations and may eventually overtake less diligent competitors.
3. Help Align Wealth With Values
Clients with a healthy portfolio may be as interested in embracing their personal values as growing their money. The right investments offer stability but can also help the person leave a lasting legacy of change. In recent years, consumers and businesses have pushed for transparency and social responsibility. Look at the company's investments and actions through the lens of what is best for the environment, society and governance.
Clients might prefer to choose from the top 40 companies scoring well in ESGs and can even focus on the main concerns they have for the world’s future health.
4. Share Growing ESG Trends
ESG has been on an upward trajectory for a decade or more. Show your clients how many advisors and investment firms around the world are paying more attention to sustainable approaches and pushing funds into ESG companies.
Offer examples of other clients who’ve hopped on the ESG trend and how their portfolio has grown more than it would have with traditional investments. At the same time, be clear that there is never a guarantee of any return and, as with all stocks, there is some risk.
5. Point out Environmental Data
Many investors may not be fully aware of the negative environmental impact of electronics and potentially artificial intelligence. User devices make up around 57% of greenhouse gas emissions. Companies can combat some of their carbon footprints by embracing sustainability. Investors can support those brands that care about preserving the environment for future generations.
Eventually, as more people become aware of the impact of technology on the earth, companies that don’t pay attention to sustainability are more likely to fall subject to fines or public backlash. The conversation is also a good time to address any myths around ESG investments, such as people only putting money into some companies to feel better about their own actions. Instead, explain how a plan to reduce their carbon footprint while aligning with companies with similar values benefits everyone.
6. Consider Future Growth
Clients should consider the growing awareness around greener practices. Thirty years ago, few people worried about corporate practices and how they impacted the ecosystem around them and the world. Today, the younger generations are highly attuned to the impact on climate.
As the world changes and society’s priorities potentially shift, having at least some investments in ESGs can help clients be poised to take advantage of any resulting growth.
Create a Balance
Many clients seek more balanced holdings. Investing in ESGs is just one way to expand investment opportunities and open the door to companies the person might not have considered supporting before. Use traditional finance methods, such as checking the history, news and data behind a company to assess performance. However, financial advisors must also consider that ESGs are poised for rapid growth in the near future and bring them to the table in any discussion about what’s best for the growth of an individual or company portfolio.
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