1. Is integrating ESG factors into my portfolio worth it?
Oliver Ernst, chartered SRI counselor, Alpen Wealth Advisory Group: Many clients, especially those just now exploring sustainable, responsible and impact (SRI) investing, wonder if using ESG analysis will make a difference. There are several myths that these portfolios are more expensive, riskier, underperform, have little impact, and have limited investment options. Mounting evidence is to the contrary. Adding this extra screening level allows individuals to create portfolios designed to help them achieve their financial goals while keeping their ethical and social concerns in mind.
2. Do SRI/ESG funds cost more than traditional funds?
Ben Smith, founder, Cove Financial Planning: People often want to learn how I and the industry at large rate ESG factors and how they are implemented in portfolios. They also ask if ESG investments are more expensive than traditional investments. People are much more cost-conscious than they have been, particularly with the meteoric rise of passive investing. Many investors assume responsible investing is more expensive, but that is not always the case. They also want to know if they need to sacrifice returns when investing in ESG/SRI funds. Some investors think they have to give up investment performance when they invest in impactful companies and funds, but that, too, is not always true.
3. Can I invest in ESG without a huge portfolio?
Ryan Mohr, principal and founder, Clarity Capital Management: The most common questions from clients who want to align their investing with their own beliefs focus on environmental impacts, governance issues, or maybe to exclude companies that are involved in products like tobacco or firearms. These questions often revolve around, is there a way to invest this way for someone who doesn’t have a huge investment portfolio? How do I actually go about this style of investing? I’m interested in investing my money this way, but have no idea how to actually go about it!
4. What are expected performance differences between sustainable and more traditional portfolios?
Daniel Tobias, founder, Passport Wealth Management: Generally my clients don’t ask questions about ESG/sustainable investing until they are prodded to do so. When I inform them I do take a substantial tilt toward sustainable strategies, they are generally interested and sometimes become excited. Ultimately they will ask about the expected differences in investment returns over time, but once that’s discussed they usually show intrigue at how complicated the space is and appreciation that I’d brought it up to them rather than the other way around.
5. Can my investments really make a difference? How can I tell?
Marguerita M. Cheng, CEO, Blue Ocean Global Wealth: There are essentially two types of clients and questions:
1) Is it really possible to have my investments align with these principles, make the world a better place and not sacrifice return? Once they understand it’s possible, they become more engaged. There’s civic engagement, but there’s [also] impact engagement. 2) How do I measure my impact? Is it financial or social? How can I access these types of investments?
6) Can I negative or positive screen my portfolio?
Greg Lessard, founder, Aspen Leaf Wealth Management: All my practice does is ESG/SRI investing. Clients ask about the following (in rough order of frequency):
- Can I eliminate fossil fuels from my portfolio?
- Can I invest in renewable energy?
- Can I eliminate guns from my portfolio?
- Can I invest in companies that treat employees fairly?
- Do I have to own Exxon, Amazon or Monsanto (Bayer)?
- Can I invest in cannabis?
It’s estimated that more than $30 trillion is invested in sustainable, impact or ESG — environmental, social and governance — products around the globe. The interest, especially with millennials, has grown dramatically, whereas large firms such as BlackRock make it a centerpiece of their offerings. However, only 41% of financial advisors have discussed impact investing with their clients, and about half are familiar with it or see it as a long-term trend, according to a new study from Fidelity Charitable.
But times are changing. We asked several younger advisors to share the most common ESG investing questions they receive today from their clients. Many of these advisors focus on impact investing in their practices. Today, all advisors should be prepared to answer these questions, especially from younger investors. Check out the gallery above to see the questions these advisors are commonly asked, and how they answer them.
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