The most astute consultants have worked out how to position sustainability as a natural extension of the work that most already do.
The market for sustainable investing products and solutions is booming: The US SIF Foundation reports a 42% rise in sustainable investment assets to more than $17 trillion, accounting for almost one-third of all assets under professional management. Individual investors are a driving force behind this expansion, including, but not limited to, the frequently mentioned demographic profiles—females and younger investors—who demonstrate a desire for sustainable investing.
So how do we explain the rolling eyes and barely detectable shrugs we’ve both seen in our conversations with financial health gurus over the last few years?
While some advisors have been pioneers in incorporating sustainable investing into their offerings, and others have used this expertise as a key point of differentiation in a competitive advice market, we find that many advisors are somewhere between cynical and hesitant to commit to sustainable investing.
When we go deeper, we discover certain counselors who are adamant about sticking with what they know. Others are hesitant to delve into client beliefs, politics, and social attitudes for fear of distracting (or alienating) clients from the value that advisors provide to financial and investment decisions.
The most astute advisors we’ve met have worked out how to position sustainability as an integral component of a financial strategy, a logical extension of the work most advisors currently do to connect aspects of their clients’ lives to their savings, investment, and spending objectives. Personal budgeting is already a microcosm of “systems thinking.”
Not all issues that prospects and clients bring to advisors are purely financial, but the skilled advisor learns to recognize the downstream effects of changing life circumstances (life “systems”) and devise financial strategies to manage the attendant risks and capitalize on new opportunities, usually over a long planning time horizon. A pay stub generator may provide you with an up-to-date perspective of your finances, ensuring that you always have the information you need throughout the year.
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We need to change who, what, and where we invest!
This shift is straightforward: company leaders, investors, and consumers must pay closer attention to environmental, social, and governance (ESG) policies.
With an increasing consumer awareness and demand for ethical-based, or values-based investing (alignment of values to investments), the implementation of ESG metrics will be critical for any firm heading towards 2030.
Luckily, worldwide transformation is underway, with an increasing number of investors incorporating ESG ratings to better understand investment risks and opportunities.
In this essay, we will look at how our sector may adapt and contribute to the necessary reforms that will allow humanity and our planet to thrive in the coming decades.
We will explain how using an ESG lens to your client investment suggestions can result in improved outcomes for all stakeholders and long-term sustainable success.
Investors today want to diversify their portfolios with more sustainable and ethical assets. Historically, the financial ecosystem was not fully prepared to support this approach to ESG-based investing and advisory.
Consumers, on the other hand, are putting pressure on businesses and governments to create a more sustainable future. Consumers are increasingly aware and knowledgeable in the information era. As we undergo the largest intergenerational wealth transfer from Baby Boomers to younger generations, each with its own set of views and values, we as an industry must be sufficiently prepared for the changes ahead.
- Millennials are outspoken and passionate about climate change
- Generation X is extremely driven to invest responsibly for the future of their children.
- Generation Z spends more money on things with higher long-term value.
It is necessary to take a values-based and long-term strategy to investment rather than one driven purely by profit. Establishing an ESG footprint in the investing market is no longer a “nice to have,” but rather a “must have,” and this includes the value chain that researches, rates, and recommends investments.
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What elements comprise ESG?
ESG metrics provide information about an organization’s impacts, risks, and opportunities. They can also aid in tracking progress toward the UN’s sustainability goals, making them transparent in order to foster confidence and attract new investors in a public arena.
ESG indicators are the reported factors that make up the company’s overall ESG grade. It is a system that calculates a company’s ranking in relation to other companies in its industry.
How do long-term investment funds fare?
The use of ESG metrics increases comprehension of a company’s business strategy, but this additional analysis and insight is only achievable with ESG data points. Investment managers rely on accurate predictions of a company’s genuine intentions and future performance to price risk more effectively.
According to a 2021 Fidelity Sustainable Investing research, there is a substantial association between ESG and dividend growth. Companies with a high sustainability rating have had the largest dividend growth over the last five years, with this growth exceeding 5%. The analysis found that non-ESG companies with a lower ESG grade had the lowest dividend increase over the same time.
