ESG Investing - Aim Higher
Investing that takes a company's environmental, social, and governance performance into account is known as ESG investing, and it is growing rapidly. Between 2016 and 2018, the field grew 34 percent. In 2018, there were more than $30 trillion in ESG assets. This article looks at how advisors can help clients take advantage of the potential in ESG investing.
ESG Investing Challenges
The growth of ESG investing is not without its challenges, however. The field tends to suffer from obstacles such as the following:
● Misconceptions about ESG investing's performance abilities
● Lack of informative data about ESG investing
● Too many choices
● Confusion regarding the meaning of ESG investment terms
Goal-Focused Approaches
For those who are guiding investors in their selection of ESG investments, an approach that takes into account not just their financial goals but also their social and environmental ones can help investors find the opportunities that best fit with their values.
Successful ESG investing should be tailored to the specific investor and include elements of education and long-term tracking of results in order to ensure that the ESG solutions chosen are fulfilling investors' needs.
In response to the diversity present in investors, multiple ESG strategies have arisen. Investors can combine these strategies in multiple ways to achieve the ESG investment portfolio that they desire.
ESG Investing Education
Investment advisors may also find that investors desire education as they navigate ESG investing. To this end, advisors can serve as a resource for helping investors understand some of the following concepts:
ESG investing is profitable.
ESG investment choices go beyond a desire to do good. They are actually profitable choices that yield lower volatility, better long-term returns, and less risk than many more traditional investment choices.
ESG data is imperfect but not impossible to obtain.
One of the major challenges with ESG investing is difficulty in obtaining consistent data about these investments. Data is often reported differently by different companies, never makes it past the company level where investors can access it, or makes it difficult for investors to see how their investments are performing. However, using the concept of "materiality," it is possible to evaluate ESG investments.
ESG integration should include certain steps.
Advisors can help investors integrate ESG investing into their portfolios in the following ways:
● Create ESG exposure throughout the entire portfolio
● Define the objectives of the investor's ESG investing
● Choose the right vehicles for the investor's ESG investments
Helping investors to successfully integrate ESG investing into their portfolios is an ongoing process that flexes in response to changing investor needs and goals.
As advisors help investors to integrate ESG into their portfolios, they need to focus on the clients' needs. In addition, the advisors themselves need to be well-versed in ESG investing so that they can successfully educate and guide investors in their own ESG choices.
With the right approach, advisors can help clients add value to their portfolios through ESG investing.