3 Steps Advisors Must Take to Capture ESG Opportunity

Facebook (recently renamed Meta), now in the crosshairs of Congress and many of its own users for its social and governance failures, serves as a timely, egregious example of a company exposed to massive ESG risks.

By sharing with clients such specific examples — and the clear importance of managing such risks — advisors reveal a much more compelling story about ESG investing. It’s not about trade-offs; it’s about serving investor pragmatism and values at the same time.

3. Reimagine your investor assessment process.

Traditionally, advisors have assessed investors almost entirely by way of risk tolerance and time horizon metrics: How much risk are you willing to take and for how long? These basic inputs create a one-dimensional view of an investor from which advisors often deliver one-dimensional model portfolio solutions.

The idea that investing could create or affect anything other than risk-adjusted returns — or that portfolios could be more customized to do so — has never been part of the conversation.

As a result, investors have remained blissfully unaware of what they really own in long-term portfolios.

Mainstream index investing meant investors only would see a single fund label, often unaware of the dozens or hundreds of holdings underneath. Investors who might stand for criminal justice reform, for example, may be unknowingly funneling money to private prison companies in their investment accounts.

These days, investors more clearly recognize the secondary effects of their passive portfolios and how they very actively drive companies in the way they operate, treat employees, treat consumers and affect the earth.

Showing clients a willingness to go beyond the basic metrics to more deeply understand their personal feelings and beliefs can dramatically reshape an advisor’s value proposition.

By assessing and understanding their clients’ interests and what matters most from a values perspective, advisors can create an engaging, personalized experience around investing rather than a cookie-cutter, transactional process.

An advisor’s ability to proactively deliver a more personalized investing experience ultimately will become table stakes, creating a clear dividing line between business growth and attrition. Advisors can harness an unprecedented industry transformation by shifting from selling products to engaging with clients on their deeply held values.

Advisors should reposition ESG as prudent investing and reimagine the investor assessment process to win more new business and protect the business they already have.

If advisors choose to transform their client discussions and relationships around values-based investing, it will offer them the opportunity of a lifetime — one that could prove immensely rewarding for themselves, their clients, and, yes, even the world.

Zachary Conway is CEO and Founder of Seeds Investor, which offers financial advisors a platform to more deeply understand their clients with assessment tools and to auto-deliver multi-asset class, values-aligned investing portfolios.