Corporations continue to improve their environmental, social and governance (ESG) practices in an effort to be more sustainable and appeal to Canadians who are drawn increasingly to responsible investing (RI).
Yet, the uptake of investment funds focused on ESG still don’t match the pace that might be expected given the interest in this rapidly evolving area.
Advisor confidence might have something to do with that, says Glen Yelton, head of Invesco Ltd.’s ESG client strategy for North America.
Two barriers affect the ability of advisors to have more involved – or any – ESG conversations with their clients, he says: a lack of familiarity with the products and their own comfort speaking about the topic.
“It takes time as an advisor to become aware of all the product offerings available for your clients and to understand their asset-allocation needs. Then, you layer on ESG. There’s a constraint in what advisors are able to recommend competently and comfortably,” Mr. Yelton says.
ESG investment options are growing. This year, Invesco alone has launched eight ESG-focused ETFs in Canada.
Still, studies show that ESG investments remain a grey area of knowledge for most financial advisors. A 2022 study from the Responsible Investment Association found that advisors’ knowledge of the subject is low. Only 6 per cent of 539 survey participants were able to identify three true statements out of 10 about RI correctly.
Understanding clients’ values
Education is critical to knowing the ins and outs of RI, providing ESG choices, and dispelling myths about underperformance. Most important, advisors need to understand what truly matters to their clients.
“What I tell advisors who want to gain a further connection to ESG is to ask themselves: what do they value? Because ESG is about those elements of investing that go beyond just the financial,” Mr. Yelton says.
To many advisors, ESG might conjure up esoteric concepts to which they can’t easily relate, he notes. “But underneath those three initials is something very personal, very unique to individuals, and it’s something that advisors could capitalize on in their conversations with clients.”
Talking about ESG investment options should happen organically as part of the overall know-your-client process. What makes them tick and what might they want their money to do? Having such discussions can also strengthen the advisor-client bond, leading to more tailored advice.
“It’s more than just a financial relationship and a quarterly statement. When people talk to you about values, they’re letting you into that part of their lives,” Mr. Yelton says. “These conversations create a better relationship between the client and advisor, and from there you can build up trust and a deeper level of customization.”
Right now, investors are willing to place that trust in their advisors. A 2022 study from the CFA Institute found a rising level of trust in financial services, with one of the drivers being investments that are aligned with personal objectives and values.
The study reported that among the ESG areas the most important to retail investors are climate change and carbon emissions, clean energy, air and water pollution, human rights, data protection, corruption, transparency, and ethical labour practices.
Mr. Yelton cautions that advisors shouldn’t try and jump into an ESG discussion they aren’t comfortable with. A “fake it till you make it” approach won’t go over well with clients. Due diligence is what wins out around ESG topics and client interests.
Growing numbers of investors are primed for these conversations. Having them is essential, Mr. Yelton says, “because if the advisor isn’t willing to discuss ESG with the client, the client will find someone who will.”
Advertising feature produced by Globe Content Studio with Invesco. The Globe’s editorial department was not involved.