ESG Trends: Advisors Plan To Boost Socially Responsible Investing

By November 16, 2018 No Comments

For many financial advisors, environmental, social and governance (ESG) investing has come to mean “green” in more ways than one.


Signs show that more advisors are sensing a golden business opportunity amid a growing public clamor for responsible investing. And for some advisors, such as Dan Aronson, the trend speaks to them personally.

“We are passionate about the investments we hold,” said Aronson, managing partner of EPIQ Partners, “and we try to lead with our values.”

While social investing isn’t new, recent data show it’s catching fire among many sought-after clients, especially millennials and women. Events such as rollbacks of environmental protections and mass shootings are spurring this trend toward investing according to one’s values. And, experts say, new tools make ESG investing more feasible. Performance data also show growing interest in ESG, also known as socially responsible investing (SRI).

“ESG is exciting because it identifies management practices that have been shown to outperform over time,” said Jordan Bastien, an advisor with RBC Wealth Management. “Not only does it give them a way to support a healthier society, but it’s one of the few ways to reliably lower risk and uncover alpha.”

To be sure, how many advisors use and/or recommend ESG/SRI strategies with clients depends on the survey taken. Moreover, since ESG/SRI is still developing, experts say it’s rife with its own set of issues and limitations that need to be understood.

ESG Gaining Traction

Nonetheless, it’s caught many advisors’ eyes. Kristin Poole, senior wealth advisor at Krilogy Financial, has “received more questions” about social investing “in the past two years than in all of the prior 12.” In today’s climate, she explains, “people want to know how to align their investments with their values.”

A new Eaton Vance survey of more than 600 financial advisors finds 79% of respondents incorporate responsible investing into their practices. Of those, 44% said it’s “an important part of their practices.” And 56% of respondents said it “is driving new business to their practices.”

By comparison, a survey by Cerulli Associates at the end of 2017 showed about one-third of advisors using ESG/SRI strategies, while another 10.9% planned to do so this year. According to the spring survey by the Financial Planning Association, the Journal of Financial Planning and the FPA Research and Practice Institute, 26% of financial advisors said they already use/recommend ESG funds to clients. And 20% expect to increase this use/recommendation over the next year.

Clearly, the gush of ESG/SRI money would be hard to ignore. By the start of this year, U.S.-domiciled assets under management in sustainable, responsible and impact strategies had hit $12 trillion. That’s up 38% from the beginning of 2016, according to a new report by the US SIF Foundation, the Forum for Sustainable and Responsible Investing. The $12 trillion “represents 26% of the $46.6 trillion of total US assets under professional management,” the Foundation said.

How To Define ESG?

But speedy ESG growth also raises issues and uncertainties that could keep some advisors at bay. Some advisors have dubbed ESG a marketing ploy, while others point to questions and cloudiness about the practice. Issues can range from what constitutes an ESG/SRI investment to the methods funds use to find holdings. For instance, does a fund seek companies that are making a positive social impact? Or does it just purge “sin” sectors, such as tobacco and firearms?

Decisions over an investment’s purity is another issue. Is the stock of, say, a solar energy company a good pick for ESG investors, even if the company’s directors include no women and minorities?

And beyond those issues, signs show more ESG products are still needed.

Consider online financial advisor Betterment, which has a diversified, low-cost offering that’s modeled after the firm’s standard balanced portfolios. Betterment hopes its SRI strategy eventually will be 100% in ESG/SRI stocks and bonds. But the 45% of its holdings now in the ESG category include only U.S. large cap and emerging-markets stocks.

But why no bonds? Alex Benke, Betterment’s vice president of advice and planning, cites a lack of available attractive, liquid ESG bond products.

More ESG Growth Ahead

Fortunately, new ESG/SRI products and analytical tools — including those that rank investments by degree of ESG characteristics — continue to crop up. And the number of ESG instructional materials, conferences and other programs is rising.

After deciding to “make a commitment to ESG as a major theme,” Jeffrey Gitterman, co-founder and partner of Gitterman Wealth Management, says his firm held conferences for financial professionals that featured thought-leaders in ESG investing. The first was in 2016 and the second in ’17. And this year, the United Nations asked Gitterman Wealth Management to host the 2018 Sustainable Investing Conference, which was held Sept. 11 at the U.N.

Moreover, the College for Financial Planning, in partnership with the US SIF, now offers a Chartered SRI Counselor designation. To obtain this credential, advisors must complete an online course of study that helps school advisors on SRI/ESG investing.


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