3 Steps Advisors Must Take To Capture ESG Opportunity

3 Steps Advisors Must Take To Capture ESG Opportunity

November 8, 2021
Zach Conway
0 min read

Global environmental, social and governance based investment assets are on track to exceed $53 trillion by 2025, representing more than a third of the $140.5 trillion in projected total assets under management, according to Bloomberg.

What’s in it for advisors? A growing business for a lifetime if they take the right steps to capture the opportunity.

Demand for ESG investing has hit record highs. Yet, only a third of U.S. adults know about ESG options, according to a recent Yahoo Finance-Harris poll. Many advisors don’t introduce ESG options to their clients or ask clients about values, thanks in part to a perceived lack of demand.

Yet, 77% of investors familiar with ESG choose to take that approach in their investment decision-making, according to the same poll. In other words, when investors know they have the option to bring values into their portfolio without hurting returns, they are more than likely to opt in.

Advisors taking a passive, reactive approach to introducing ESG and values-aligned investing to their clients could soon face a reckoning, while those who take a proactive approach have a massive opportunity to deepen their value proposition, stand apart, and grow their business.

Here are the three steps every financial advisor must take to make that a reality.

1. Stop making products primary. Focus on people (clients).

Most financial advisors intuitively understand that clients want personalized, objective guidance that aligns with their needs. To deliver, advisors must put the person first; not to sell products and services, but to first listen and understand.

In practice, many advisors default into the habit of selling preferred investment approaches or portfolio solutions rather than their unique ability to listen and provide people-first, unbiased, invaluable guidance.

A conversation around values-aligned investing is the perfect catalyst for reinventing an advisor’s initial engagement with prospects and clients.

When it comes to a values-aligned portfolio, advisors must first understand what matters to the client beyond traditional financial goals to deliver the right portfolio to a client. So, put away the investment presentation, lead with an assessment process, and just listen.

2. Recognize and reposition ESG as prudent investing.

Advisors initially assumed that ESG-integrated portfolios would underperform relative benchmarks or expose investors to added risk for the same returns.

Yet, the world’s largest asset managers continue to validate ESG integration not just for its moral or ethical merits but also for how it serves as a governor of risk: a fundamental step in fully assessing companies and their long-term viability.

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.

This article was republished from ThinkAdvisor: 3 Steps Advisors Must Take to Capture ESG Opportunity

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.


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Zach Conway

Founder & CEO