It can be hard for today’s advisors to wrap their heads around meaningfully engaging with portfolios informed by environmental, social and governance factors, or sustainability.
The ESG craze of the past few years saw big asset managers on Wall Street, from BlackRock to Vanguard to State Street, crowd into what had once been the focus of specialists, with many new funds labeled “ESG” that critics said were superficially constructed to appear sustainable. PwC estimated last year that global asset managers were expected to oversee $33.9 trillion in ESG-related assets by 2026, up from $18.4 trillion In 2021.
Yet recently, the political right-wing backlash against ESG-based investing and poor short-term performance of several ESG funds, as well as investor movement out of those funds, have led asset managers to shutter several of them, according to Morningstar data. “The more divisive environment, of course, that’s difficult for everybody, and it’s having the intended chilling effect on the market overall,” said Blaine Townsend, the head of the Sustainable, Responsible, and Impact Investing Group at Bailard, an RIA in the San Francisco Bay Area.
“But if you just focus on, what are the values that your client would like to see reflected in a portfolio? It should be the same conversation that you had 20 years ago. And the good news is, there’s many more options to deliver these portfolios to clients.”
For Peter “Pete” Krull, a longtime specialist in this area who was in New York during Climate Week NYC (Sep. 17-24), there’s clearly still interest from both advisors and clients in ESG. He attended the ICE Climate and Capital Conference at the NYSE and noticed plenty of advisors there.
“There were a lot of people on the institutional side there,” Krull said. “So it was good to see that kind of attendance at the event.”
October 11, 2022 6:45 PM
Krull is the partner and director of sustainable investing at Earth Equity Advisors, an RIA which was recently acquired by fellow RIA Prime Capital Investment Advisors Company, in Asheville, North Carolina. He believes that ESG still holds value as a term because it provides key ways for advisors to screen for “material risks” to a client’s portfolio — especially in the form of climate change and its documented economic impacts.
So where do advisors go from here? Krull and Townsend shared their thoughts with FP on what’s next for ESG and/or sustainable investing, and how advisors hoping to engage with these trends can seek clarity in the fog. Below are three tips.
*Note: ESG is not thought of as equivalent to sustainability, but the two terms often appear in the same conversations. ESG is considered a set of criteria used for evaluating investments, often with the aim of producing a portfolio that supports sustainability. Sustainable investing is a strategy that seeks returns with long-term environmentally and socially healthy, or sustainable, outcomes.
This content was originally published here.
