Most advisors are familiar with environmental, social and governance investing, but just a small sliver of the industry is proactively incorporating these factors into their investment strategy, according to a new report by Practical Perspectives, an independent consulting and research firm.
While 40 percent of advisors have used ESG strategies in the past, only a quarter are currently using them in their investment portfolios. Less than one in 10 advisors overall are “enthusiasts,” incorporating ESG explicitly.
“Most advisors are familiar with ESG investing but are not motivated to offer these solutions broadly to clients,” said Howard Schneider, president of Practical Perspectives and author of the report, in a statement. “Few non-users of ESG expect to leverage these solutions until client demand becomes more extensive.”
Advisors cited a lack of client demand for ESG as the top reason for not using the strategy. Other challenges included a lack of standards defining ESG, lack of investment choices, need for longer track records and underperformance.
John Streur, CEO of Calvert, the $15 billion asset management firm and an early pioneer in socially responsible investing, believes the next wave of ESG will see investors and managers more actively engaged with the companies they own—by proxy battles if needed—to push the corporate needle toward better ESG practices, and, he argues, ultimately better financial performance. Taking up that cause would also be a serious point of differentiation for advisors and open up deeper levels of conversations with clients based on such things as values, goals and legacy.
The study is based on more than 550 online surveys of advisors at wirehouses, regional brokerages, independent broker/dealers and registered investment advisors.
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