Whether you call it sustainable, socially responsible, impact or ESG investing, the assets under management in these categories are exploding. By early 2016, they had climbed to $8.72 trillion in the U.S., equivalent to a 20% share of total assets under professional management, and to $23 trillion globally, according to the latest available macro data.
Current levels are likely quite a bit higher given the launches of new impact and sustainable funds as well as new and expanded sustainable ESG ratings for mutual funds and ETFs and the growing number of publicly traded companies reporting ESG data, but official numbers are not yet available.
Despite this growth, many U.S. financial advisors haven’t embraced these strategies, for a number of reasons. Some are concerned about lagging performance, although evidence is growing not only that these strategies generally don’t impair performance but that they can actually boost it.
Others don’t feel familiar enough with these strategies to recommend them to clients, but what if your clients are demanding sustainable or impact investments? What resources can you access to become more familiar and more comfortable with these investments?
The listings that follow are for those advisors, but even advisors at major brokerages like Morgan Stanley or UBS — which holds one-third of its assets in sustainable investments — with access to multiple resources on their corporate platform may find them useful.
Using an ESG approach to investing is more than simply “finding a fund a client likes and checking off the impact or ESG box,” says Tim Freundlich, president of ImpactAssets, a boutique donor-advised fund, who works with about 300 wealth advisors across the country.
“It’s a lens that overlays all the stuff you’re doing … an approach that like value or growth includes a time horizon, risk profile, and fits the impact a client is passionate about … an investment theme … It’s not just finding a little magic bullet to placate your client.”
The following sources can provide a good introduction to ESG, sustainable, socially responsible and impact strategies.
The forum is an especially good first stop for advisors just starting out in impact investing but is equally useful for advisors more experienced in sustainable investing. The forum is dedicated to the advancement of sustainable, responsible and impact investing expertise and offers an online course, the Fundamentals of Sustainable and Impact Investment, for advisors and other financial professionals that explains how to talk about SRI with clients, incorporate SRI into investment portfolios and understand the latest trends and research.
Members of the nonprofit organization collectively have $3 trillion in as sustainable assets under management or advisement, says Meg Voorhes, director of research. Members include asset management firms, asset owners, community investing institutions, nonprofit organization and service providers, the category that includes financial advisors.
Membership provides advisors networking and education opportunities, access to US SIF Foundation research and publications, discounts to its annual meeting and, most importantly, inclusion in the US SIF’s online Financial Services Directory, which investors use to locate financial planners, advisors and brokers as well as other types of financial practitioners. Members can display the “US SIF Member” logo on their websites as a mark of commitment to sustainable and responsible investing.
The cost of membership varies and is based on the amount of annual revenues from SRI/ESG services, ranging from $595 for firms collecting less than $250,000 in such revenues to $27,860 for firms collecting $30 million or more from such activities, with gradations in between.
One of the key challenges facing advisors who want to invest client assets in sustainable or Impact assets concerns the data that defines these investments. There are many different analytics providing those measures, but the Sustainability Accounting Standards Board (SASB), based in the U.S., stands out. It’s independent, overseen by the nonprofit SASB Foundation and sets the standards by which many publicly traded companies disclose material ESG information in mandatory filings such as quarterly and annual reports.
The standards focus on sustainability topics that are likely to have material impacts on the financial condition or operating performance of companies, and its advisory board consists of about 20 institutional investors including the asset management divisions of UBS, Goldman Sachs and Wells Fargo as well as BlackRock, PIMCO, TIAA, State Street and the country’s two largest pension funds, CalPERS and CalSTRS.