How Financial Advice Impacts ESG Engagement Today:
For many years, people viewed Environmental, Social and Governance (ESG) investing as being limited. There was a price to pay if you chose to factor your ethical beliefs into the way you invested. Indeed, less “ethical” investment opportunities (generally-speaking) could promise greater returns. Thankfully, recent times have seen a shift in focus, and there is now greater awareness of ESG factors. People are increasingly interested in seeing their money go further. Not only do they want to see handsome returns, but they also want their money to positively affect the world. So, it seems that financial advice has a big part to play in ESG engagement today.
As financial advisers, we believe we have a moral and ethical duty to spread awareness of ESG opportunities. As such, for us, engagement is key. Furthermore, we believe this must happen on two fronts. Firstly, there must be good engagement with fund/portfolio managers. It will fall to them to encourage firms to become more vested in ethically-minded principles. Secondly, there must be good engagement with the clients themselves. After all, it will be the advisers’ responsibility to open up the conversation about ESG. Ours will be a role of exploring the possibilities of ESG and building bespoke portfolios hinged on its values.
From fund/portfolio managers, we need to see so much more than simple exclusions being used to meet ESG requirements and ESG needs treating as more than just a fad, a buzz-word, or a marketing opportunity.
For us, consistency over what ESG means, with tangible evidence to support funds/portfolios’ classifications, will be critical. That evidence should include financial metrics, showing risks taken, and performance achieved. We will also want to see broader details of how society has benefitted. If a company reduces unsustainable practices, or implements more responsible processes, we will need to ask how?
As advisers, we will need to see leaders actively pursuing responsible ‘capitalism.’ By the same token, we will also need to see ‘offending’ companies having to defend their position.
We believe that financial advisers are in an ideal position to help educate clients. Whether that be as simple as raising ethical investing as an option for discussion at introductory meetings; or through targeted initiatives to provide further awareness, ESG principles must be made as easily accessible as possible.
It’s important to encourage questions. We must take care to be proactive and to open up the discussion. No doubt, a fundamental part of this will be showing that supporting responsible capitalism can now meet financial goals. Indeed, they can go further than that. In many cases, they can even outperform, outpace, and outthink more traditional models of investment.
ESG Engagement Today
A bit part of ESG engagement will likely be driven by the need to knock down people’s ESG-related preconceptions. Investing in ESG funds no longer means (if it ever did) sacrificing returns in exchange for investing in with their conscience. Nor are they necessarily a more expensive option than their ‘less ethical’ counterparts.
As things stand, there is a belief that those companies that fail to observe ethical standards, will look unattractive. So, ESG looks set to be firmly on the horizon for the foreseeable future, and businesses, client and advisers alike would do well to familiarise themselves with its merits in order to make the most of its rising star.
If you would like to find out more about our ethical investing portfolios, please do see our ethical and sustainable investing page. Alternatively, do feel free to get in touch – we’d be happy to see how we can help!
Written by Ian Barnett
Ian is an experienced Chartered Financial Planner as well as being a Fellow of the Personal Finance Society, with over 25 years’ experience in the financial services industry. With a broad range of client experience and expertise, Ian specialises in financial matters from Pre-Retirement Planning to Inheritance Tax Planning and all points in between.