Five ways to add value with ESG
Five Ways to Add Value with ESG
In a recent survey by Aviva of over 500 people with investments, over half (55%) said that the pandemic had had an impact on their likelihood to take ESG factors into consideration when deciding where to invest their money. Amongst those who said they already consider ESG, 81% said the pandemic made this even more important.1
It’s no longer enough to deliver clients high rates of return. Now clients want their money to ‘do good’ as well. This quote from an investor during research conducted for Aviva by Big Window shows the shift in mindset:
“I buy Fairtrade, I use independent shops not Amazon – my choices are driven by my values so ethical investing was a no brainer once I knew it existed.” 2
Even if you suspect that your clients might not be interested now, this could change in the not too distant future.
We’ve put together five simple steps that will help introduce your clients to ESG investing:
1. Ask clients about their values
Finding out what interests your clients is a very important first step – there’s no point spending an hour talking about the recycling values at the core of a fund’s ethos if your client is actually most passionate about promoting social equality.
Take the time to ask some questions about your clients’ views of ESG. A simple questionnaire can lead to some very interesting conversations.
‘Governance’ may not sound scintillating but when you pull it apart: taxes, executive remuneration, donations, political lobbying, corruption and board diversity are at the heart of some of this year’s most compelling stories.
2. Use everyday language
ESG investments are rising to the top of people’s priorities, so it stands to reason that they’ll come to you for advice. But according to ESG research conducted by The Big Window 2, you’ll need to act as a translator.
“The language makes you feel really stupid, it’s intimidating and hard to understand. They don’t make it easy.” Experienced Investor, aged 34
Straightforward language doesn’t have to mean “dumbing down” – after all, a monetary investment and remuneration vehicle for the post-employment individual is also just as effective when called a pension fund for someone who has retired. If some terms are going to come up time and again in reports, make sure your clients understand what they mean – “governance is concerned with how companies are run” – but don’t try to blind them with jargon when you’re discussing ESG between the two of you.
Clients respond to more tangible examples, so mentioning the recent devastating wildfires around the world will resonate more than vaguely referring to ‘the environment’. This will also give your client the impression that you’re really focusing on the specific areas that interest them.
3. Offer small steps
Work out the level of change your clients are happy to take. Do they want to go all-in and actively switch all their funds?
Or are they more likely to prefer to take smaller steps? Assuming most clients have a wide range of funds, they will be able to switch each investment individually, based on what part of ESG is most important to them. This way they’re less likely to feel the stress of changing all their funds at one time…
You might start by identifying your client’s key ‘no-no’ stocks (tobacco/arms sales/gambling), which will allow you to discard funds that invest in those areas.
Alistair McQueen, Head of Savings and Retirement at Aviva, suggests using these four tips as a starting point for ESG investing:
- Think about which companies reflect your values.
- Be curious – explore all the different options and don’t be afraid to ask questions.
- Don’t be put off by the terminology.
- Challenge green credentials
4. Give clients a choice
ESG doesn’t offer a “one-size-fits-all” approach. Two clients who care about the environment will not automatically want to invest in the same “environmental” fund.
Take the time to chat to your clients about their principles and beliefs and make sure you understand their personal values too. In the past, clients may only have been interested in funds that brought good returns, but the ESG approach makes fund choices a much more personal decision.
Nobody wants to lose money on their investments, so now would be the perfect time to point out how well ESG funds are performing. However, there is still room to improve the ESG rating standards, not least because of the rise in greenwashing – where organisations are using “green” terms to sound ethically responsible, with no evidence to back up their claims.
Making sure you know what your client wants and has a number of options for each investment will help both you and them find the best investing fit.
5. Give clients the gift of knowledge and get yourself up to speed
Our recent research revealed that whilst 73% of investors think it very likely they will invest in ESG funds in the future, they still feel unsure that their understanding is comprehensive enough. In the same research, advisers also felt their clients didn’t know enough about ESG to be confident making changes to their investments. 2
We also found that ESG is not only here to stay, it’s here to make money and could produce better returns compared to non-ESG peers.4 Even during the pandemic, ESG funds have outperformed non-ESG funds. 3
We know from our research, that 92% of advisers believe ESG will make up a greater portion of their business in two years time. 2 Now is a good time to start unlocking this market for both you and your clients.
For more information on ESG, visit our dedicated ESG Hub.
Sources of information:
2 ESG Landscaping Research