Consider this recent client conversation that a prominent financial advisor, Jim, recently had with one of his largest clients: “Jim, I’m really impressed with how you have incorporated socially responsible investments (SRI) into our portfolios and the excellent returns we’re seeing from those investments. But what I’m wondering about now is what are you doing as a business owner to follow suit?”
Jim’s response to his client? “Hmm … let me get back to you on that.”
With SRI investing growing exponentially, this conversation will become more and more frequent, providing a new opportunity for leading financial advisors to differentiate their firms and capitalize on the SRI “mega-trend” currently happening in the wealth management industry.
This opportunity provides advisors who have a practice management and business plan dedicated to the “greening” of their advisory firm to not only talk the SRI talk, but to also walk the walk and back it up with tangible initiatives to demonstrate their commitment to making the world a better place for current and future generations.
Why is this becoming so important?
The Social Investment Forum (SIF) recently reported that 12.2% [$3.07 trillion] of the $25.2 trillion in total U.S. assets under management is involved in some strategy of socially responsible and sustainable investing. The SIF report further states that these assets are up over 13% in the last two years, despite the economic downturn and in an environment where overall assets increased less than 1%. Additionally, SRI investing has become part of the mainstream, and as a result just about all investment companies now offer SRI products to their clients.
The bottom line is that as more and more investors become aware of and demand SRI strategies, those advisors who are positioned ahead of the “sustainability curve” will benefit the most, leaving firms that aren’t, behind.
What’s driving SRI demand?
There are a number of factors propelling the demand for SRI investments that are only expected to increase dramatically over the coming years.
Large institutions—particularly public funds—are now adopting environmental and social governance (ESG) criteria due to legislative mandates, causing money managers to increasingly incorporate ESG factors into their investment analysis, decision-making and portfolio construction.
New products and fund styles are driving growth in ESG investment vehicles as well, especially among ETFs and alternative investment funds such as social venture capital, double- and triple-bottom-line private equity, along with responsible property funds.
Additionally, environmentally themed investment products and services are rapidly emerging to meet investors’ growing desire to manage environmental risks and capitalize on opportunities in clean and green technology, alternative and renewable energy, green building and responsible property development, along with other environmentally driven businesses.
Other factors include the visibility of high-profile investors and leaders involved in SRI investing, such as Al Gore and David Blood’s Generation Investment Management fund with more than $5 billion in assets.
What does this all mean for financial advisors?
The key implications for financial advisors is that as the awareness and investor demand for SRI investing increases, forward-looking advisors can differentiate their firms by not only developing expertise in SRI, bus also in applying sustainability practices (environmentally and socially responsible) to their own businesses to demonstrate their understanding and commitment to their clients and prospects.
Done right, this SRI “walk the walk” differentiation will provide a powerful message, positioning your firm for growth from new SRI asset flows, while helping you to attract and retain top employees, as well as set a strong example in your community on how to preserve and conserve our scarce resources.
There is also a real and tangible return on investment (ROI) from sustainability practices, as they have a direct impact on the bottom line through reduced costs and efficiencies.
So where do you begin? The first step is to define sustainability for your firm. A good working definition of sustainability from the International Institute for Sustainable Development is, “…adopting business strategies and activities that meet the needs of the enterprise and its stakeholders today while protecting, sustaining and enhancing the human and natural resources that will be needed in the future.”
As part of this first step, taking an assessment of your environmental and social impacts, such as energy use, paper consumption, purchasing decisions, mailing, couriering and overnight delivery use, water utilization, e-waste generation, air and car travel, commuting activities and the like are all good places to start.
Once you have an understanding of your consumption and impact, including your carbon footprint, putting in place conservation measures, employee incentives, and policies and procedures to lower your use of resources and conserve energy can become the foundation of your sustainability strategy.
One example is shutting down PCs at night. According to Verdiem Corporation, 15 PCs generate as much carbon emissions as a midsized car each year. Leveraging technology to streamline business processes through business process management (BPM) can help reduce energy consumption, enhance operational efficiencies and reduce your carbon footprint.
Other examples include using document management software to create a “paperless” office. With the average document copied 22 times, hours are spent filing and retrieving endless paper files and cabinets. Investment advisors have excellent opportunities to harvest savings and reduce carbon generating activities by automating their workflows through document management systems and applying BPM to simplify the time, labor and energy use activities.
Once you have your sustainability strategy in place, an important step is to document it so you can easily share it with your key stakeholders, employees, clients, centers of influence, vendors and others you come in contact with on a daily basis.
A popular way to document your approach to sustainability is to get outside “certification” for your business. One approach includes leveraging your community Green Certification, such as working with your local green business authority.
Communicate, Communicate, Communicate
Key to your sustainability strategy is to create a communication plan to raise awareness of what you are doing so the marketplace, your key stakeholders and clients can gain an understanding of how your firm is different and demonstrate your commitment to sustainability, as well as to provide you with brand building, PR and marketing opportunities.
One method is sustainability reporting. Sustainability reporting can be used to benchmark your performance against international standards, communicate your voluntary initiatives, and showcase your commitment to corporate responsibility and sustainability over time.
When you are ready to externally report on your corporate responsibility and sustainability, one good place to start is to do it in a way that follows established standards, such as The Global Reporting Initiative (GRI). The GRI is quickly becoming the de facto reporting framework that is used globally to report on overall corporate responsibility. It provides steps, principles, international standards and protocols for reporting on metrics, and an overall framework for structuring your report.
Additionally, you’ll want to create a comprehensive communication plan to effectively and broadly spread the word about your dedication, commitment and success. You can easily do this by taking into account all of the communication channels available to you.
The ideas and strategies detailed here are just a partial list of what is available to financial advisors. One clear and simple step is to develop a sustainability strategy, document it, become certified and communicate it broadly. The time to act is now—advisors owe it to themselves, their firms, employees, clients and future generations to learn ways to build a sustainable business.
Louise Barnes is principal of Tred-Lite Consulting and holds LEED AP, ISO 14001 Provisional Environmental Auditor designations and is GRI Certified. Louise can be reached at firstname.lastname@example.org.
Timothy D. Welsh is president and founder of Nexus Strategy LLC, a leading consulting firm to the wealth management industry. Tim can be reached at email@example.com.