Environmental, social, and governance (ESG) funds continue attracting assets at warp speed, and as strategies in this space evolve and differentiate from competitors, investors are likely to have more questions.
That’s a sign advisors need to bone up on ESG and sustainable investing strategies because the simple fact is that client demand is there, and it’s likely to continue expanding. While interest in ESG strategies is taking off significantly, some advisors aren’t yet meeting this demand from clients.
“Despite this dramatic increase in interest in sustainable funds, some advisors have been slow to embrace the trend: Although the majority of investors working with a financial professional say they have positive perceptions of sustainable investing and ESG, only 36% of advisors offered sustainable investment options to their clients in 2018,” according to Fidelity research.
One way of looking at that scenario is that the time is now for advisors to have more ESG and sustainable investing conversations with clients and bring more options into the fold to meet surging client demand. Data confirm those are good ideas.
“One study found that a majority of investors (79%) say they ‘love the idea of investing in a company that cares about the same issues that they do.’ A similar percentage (74%) believe ESG-based investments represent “a strategy they can feel good about and one that makes
long-term financial sense,” adds Fidelity.
Another benefit for advisors in becoming more ESG-savvy is that this investing style is particularly important to coveted younger demographics. That’s something to consider as baby boomers ease into retirement and the multi-trillion-dollar transfer of wealth gains momentum.
“Fidelity found that 1 in 5 investors—and over a third of Gen XYZ investors—are willing to pay more for an advisor who offers more socially responsible or ESG-based investing strategies,” says the fund issuer.
Other research suggests client outcomes can indeed be enhanced with ESG strategies. Bank of America previously noted that companies that score well on an ESG basis often sport superior earnings growth over companies that are ESG offenders.
“In addition, according to a report by Nordea Equity Research, strong ESG performance contributes to risk mitigation on several levels. For example, the report concluded that ESG ratings mitigate reputational risk and can be a leading indicator of future earnings stability and a predictor of share price volatility,’” according to Fidelity.
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