Investors are piling into environmental, social, and governance (ESG) strategies. At the end of 2019, there was an estimated $30 trillion in ESG assets. Some experts believe that this figure could tack on another $20 trillion by 2040.
Those are big numbers, and they underscore the importance of advisors having a game plan for conversing in ESG with clients because, as the above data points prove, clients want ESG exposure. It’s not a daunting task to engage with clients on ESG, but advisors need to do some homework of their own.
“ESG is about informing better decision-making by adding the assessment of material, environmental, social and governance issues to the investment process. It enriches traditional research like analyzing financial statements, industry trends and company growth strategies,” says Brie Williams, head of practice management at State Street Global Advisors.
Good news for advisors (and clients) is that ESG strategies are answering the question many clients have about this investment style: “Am I leaving returns on the table by embracing ESG?” The answer appears to increasingly be “no.”
“Recent research highlighting long-term risk-adjusted returns and lower downside has challenged the notion that ESG investing could mean sacrificing returns,” says Williams. “Additionally, State Street Global Advisors’ own research finds that 69% of ESG adopters say that pursuing an ESG strategy has helped with managing volatility. Seventy-five percent expect the same returns from those investments as they do from others.”
As Williams notes, there are some points of emphasis for advisors to focus on in the ESG conversation. Those include essentials, such as identifying how ESG fits into the confines of clients’ existing portfolios, keeping risk in perspective by identifying just how much ESG exposure is appropriate, and taking a long-term approach.
Another element of the equation — and this may be encouraging to some clients — is that ESG puts investors in a futuristic position today.
“ESG enables clients to invest with greater precision—to apply a broader lens to more deeply analyze investments. Whether they want to match investments with their mission or pursue enhancing long-term performance, ESG can help meet their goals. It’s a new way of valuing the future," concludes Williams.
Investors looking to get into ESG on their own may want to consider ETFs such as the Goldman Sachs Future Planet Equity ETF (GSFP ) and the Goldman Sachs JUST U.S. Large Cap Equity ETF (JUST ).
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