Financial advisors believe they can grow their practices through sustainable and impact investments, and are prepared to commit assets to take advantage of the opportunity.
The Calvert Foundation, which makes loans below market rates to community organizations, reported earlier this month that most respondents in its Gateways to Impact study were willing to recommend sustainable investments to about a third of their clients and would allocate between 10% and 20% of those portfolios to the products.
This means that on average, U.S. advisors are willing to place 2.5% of their total assets under management in sustainable investments for a market potential of $650 billion, Calvert said in a statement.
“People want to align their money with their values, and there is growing recognition on behalf of financial advisors that they need sustainable and impact investment products to offer their clients,” Lisa Hall (left), the foundation’s president and CEO and a project manager for the research, said in the statement.
“This report shows that the firms that succeed in this market will be first to give their advisors the tools and education they need to effectively advise their clients on sustainable investment opportunities.”
Deutsche Bank, the Rockefeller Foundation and Envestnet were among the sponsors of the study.
Thirty-eight percent of financial advisors surveyed expressed strong interest and 72% expressed some interest in recommending sustainable investments to their clients, Calvert said.
The advisors who expressed strongest interest in advising their clients on sustainable investment strategies tended to be female, have advanced certifications and affiliations with national RIA firms, have average client assets under management between $1 million and $10 million and have less than 10 years of tenure as advisors.
The study identified factors that could enable advisors to increase their sustainable investment advisory. The leading ones advisors cited as a need:
- Evidence of financial performance—54%
- Client demand—44%
- Longer track records—39%.
Calvert said financial services firms could help their advisors serve clients more effectively by providing them with guidance on how to build their expertise in sustainable investing and the available products at their firm.
Researchers tested advisor interest using descriptions of eight sustainable investment products. The highest levels of interest were in more traditional products that are already familiar to advisors—a U.S. large-cap equity fund with environmental, social and governance considerations factored into company analysis (61%); a U.S. corporate bond fund with ESG focus (53%); and a global equity fund with sustainability focus (51%).
The research also found that 23% of advisors believed that “impact investments”—or direct investments in community development, microfinance and other social enterprises that usually take the form of private debt or equity—are appropriate for many or all of their clients.