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SRI: How Advisors Can Bridge Idea and Practice

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Socially responsible investing is hard to overlook these days. There is roughly $12 trillion — or one out of every $4 of professionally managed assets in the U.S.— invested in line with sustainable, responsible and impact strategies, and the practice continues to gain market share globally.

Companies increasingly tout their environmental and social practices on earnings calls, appealing to growing interest in such information. Environmental, social and governance factors continue to move up the list of investor priorities.

This is all for good reason. Aside from being morally compelling, sustainable investing is increasingly seen as “full-information investing.” The burgeoning availability and sophistication of ESG data equips investors with new ways to assess corporate behavior and subsequently, risk. For investment advisors, it also presents a tremendous opportunity to differentiate and modernize their firms.

Still, many advisors meet a roadblock when it comes to bridging the gap between idea and implementation. This is perhaps not surprising — just as index investing stumped advisors in the mid-1970s before it emerged as a dominant investment strategy, sustainable investing may take time to achieve mass adoption. We think sustainable investing is largely an untapped opportunity, and for those advisors who want to translate interest into adoption, it may be a matter of making a few simple changes.

• Personalize the introduction: While there’s a good chance clients are familiar with the concept behind sustainable investing, the way an advisor raises the discussion has direct consequences on a client’s receptivity. Is your client especially risk averse? Perhaps you introduce sustainable investing as a tool for risk mitigation, pointing to the material consequences of poor governance in instances such as Uber or Boeing. Is your client especially interested in causes such as gender equity or climate change? Investing with a gender or climate lens is an opportunity to align one’s financial story with his or her personal interests. Sustainable investing is a big topic; the more personal you make it, the more sense it can make to clients.

• Bring your client into the discovery process: ESG products come in many flavors and, as an advisor, it can be difficult to know where to start. Instead of trying to master the complexities of a specific product, start with what you know: your client. Are they detail-oriented, eager to pore over impact reports? Are they brand-sensitive, highly responsive to the way their investments express their identity? Are they early adopters or wait-and-see investors? Having a clear direction of how your client wants to approach sustainable investment strategies is an essential step toward implementation. These conversations also engage the client in the process and provide ample opportunity to deepen the client relationship.

• Address key concerns: Advisors commonly encounter the same three questions when raising the idea of sustainable investing with clients. The first is a performance question: “Does sustainable investing mean I have to compromise returns?” The second is a product question: “How can I align my portfolio with my values?” And the third is a reporting question: “Can you show me the impact?” Education is an essential part of sustainable-investing adoption, and there are plenty of resources advisors can turn to as they familiarize themselves with the possibilities.

Known as the “ESG paradox,” the spread between client interest and advisor adoption is one of the main barriers to growing sustainable investment assets. As investor interest in sustainable investing continues to mount, advisors face both a growing responsibility and opportunity to educate themselves and their clients about how and why the strategy can work for them.

Alex Laipple is the head of business development at Ethic, a tech-driven asset manager focused on sustainable investing. Melissa Mittelman creates content at Ethic and is an alumna of Bloomberg News, where she covered private equity & deals. Melissa previously worked at Deutsche Bank, providing institutional, cross-asset sales coverage for ultra-high net worth investors.


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