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COVID-19: A Wake-Up Call for Advisors on Climate-Related Investing

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While the story of COVID-19’s aftermath on our financial markets has yet to be written, one lesson around which traditional finance is starting to coalesce is that COVID-19 has highlighted the need for greater investment in climate solutions right now.

Like COVID-19, the costs of prevention are much cheaper than procrastination. What’s more, it’s quickly proving the investment case for impact investing to traditional investors — not just cutting-edge impact investors — like never before. As has been widely reported in recent weeks sustainable investing has thus far outperformed traditional markets during this crisis.

In other words, impact investing is no longer a nice-to-have. Here are three reasons why financial advisors and RIAs who have been slow to get on the impact investing train need to get on board or be left behind.

1. Getting smart now on sustainable investing options is simply good business.

There is a growing chorus among commentators and asset managers alike that COVID-19 may have been the catalyst sustainable investing needed to go mainstream. For good reason. According to Morningstar, sustainable investments (those incorporating environmental stewardship, high labor standards, and governance best practices) outperformed traditional investments during the first quarter of 2020, falling 18.5% based on the Sustainable Index Fund average, compared to a decrease of 19.6% for the conventional benchmark, based on the iShares Core S&P 500 ETF.

Even prior to COVID-19, investors wanted to know more about their sustainable investing options. According to the Morgan Stanley Institute for Sustainable Investing, 75% of individual investors, 84% of women and 86% of millennials are interested in sustainable investing, along with 77% of institutions saying they have a responsibility to address sustainability issues through their investments. With the relative strength of sustainable investments to withstand the COVID-19 crisis, even more clients are going to want to talk to you about it and understand how they can redirect some of their investments.

So if you haven’t been paying attention to sustainable investing before, trust me, your clients are. So you need to.

2. Starting the conversation is easier than you think.

Questions from clients who turn to you for guidance about sustainable investing give you an opportunity to deepen your connection with them and advance your advisory relationships to a new level.

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The good news is that starting the conversation is easier than you’d think. Impact investing speaks directly to issues that a client is really passionate about, whether it’s the climate, gender equity, social justice, alternative energy, etc. So starting the conversation really just amounts to asking a client what issues they care most about.

Getting smart on the topic is also easier than you’d think. One way to start is by finding someone within your firm or the industry who can help you find the information you’re looking for. Some firms have an impact or ESG investing expert who can direct you to the right resources for your clients. You can also turn to impact advisory firms with outsourced models to be your subject matter experts. US SIF and the Global Impact Investing Network are also excellent resources to familiarize yourself with the impact marketplace.

By getting smart on the issues, you can help your client learn more about the investment areas they’re interested in and present them with an array of investment options across the private and public marketplaces.

3. Climate investing touches nearly every asset class and investment area.

Investing in climate solutions is much more than just divesting from fossil fuels and reinvesting in alternative energy. It touches many different asset classes and industries that have significant climate impacts, which makes it relatively easy to find investment options and deal flow. What’s more, many industry asset managers like Nuveen, TIAA and Calvert Impact Capital have products that can be incorporated into a portfolio.

For example, if you have a client that likes real estate investing, you can look for investments that incorporate sea level rise risk or favor LEED-certified buildings. If your clients are interested in gender issues, educating girls and increasing the availability of family planning are the sixth and seventh solutions most capable of reducing carbon emissions by 2050 as compared to more than 80 climate solutions ranked by Project Drawdown. Or, if you have a client interested in affordable housing, many low-income neighborhoods are in low-lying areas susceptible to flooding as we saw after the storms that ravaged New Orleans and Texas and impact investments can alleviate these risks. Similarly, energy efficiency savings in low-income housing has a multiplier effect on the livelihoods of the residents for whom small improvements in savings make more of a difference.

So while you are laying low at home during this COVID-19 moment, use the time to brush up on your knowledge on sustainable investing. This is no longer the wave of the future. The wave is about to crash on the beach, so don’t get wiped out. With just a bit of work your business can ride the wave like a pro.

Hummayun JavedHummayun Javed is director of investments at Align Impact.