See How An e-Training Platform Aims To Change The Sustainable Investing Game.
Sustainable funds that focus on environmental, social and governance (ESG) factors alongside financial risks are seeing massive inflows and strong performance during the pandemic, according to Morningstar.
With interest in these instruments surging, it’s time for financial advisors to brush up on their sustainable investing skills and knowledge—for their own good as well as the good of their clients.
Regardless of their age, gender or wealth level, people who want to learn more about sustainable investing are looking to their financial advisors for advice and tools, says Keith Dixson, head of international development at CANDRIAM, a New York Life Investments Company.
“There’s a clear need for people to get the basic education they need to understand what this huge, growing sustainable movement is about,” says Dixson. “And they want their advisors to be able to educate them.”
New York Life Investments research shows that more than half of investors self-identify as “values-driven”—and that 84% of the people in that group want to talk about sustainable investing with their advisors.
To bring advisors up to speed—and help them forge more meaningful relationships with clients—New York Life Investments announced the U.S. launch of its online CANDRIAM Academy in June. Compatible with social distancing, the free-to-access accredited training platform offers advisors a virtual education in sustainable investing.
It’s clear that intervention is needed: While 58% of investors say their advisors play the biggest roles in determining their investments, only a third of those investors are actually aware of sustainable investing, according to New York Life Investments research.
Helping investors do good is just good business, says Dixson. New York Life Investments data also shows that nearly two-thirds of investors converted from awareness to action after discussing sustainable investment strategies with their advisors.
“The key thing for both advisors and individual investors is education” says Dixson. “If you give people the knowledge and show them the toolkit, they will then go out and take action.”
Through A Wider Lens
Beyond alignment with investors’ personal values, sustainable investing also lets clients take a broader and more nuanced view of a company’s risks and opportunities. It does this by compelling them to look beyond the balance sheet at non-financial factors that can affect long-term performance, Dixson says.
“A company’s brand value and intangible asset base can be more accurately captured through a sustainable investing lens,” he adds.
Sustainable investing involves evaluating environmental issues like climate change and renewable energy, social factors like human rights and diversity, and governance issues such as transparency and business ethics.
For example, how might a company’s treatment of its suppliers help it avoid disruptions during a shutdown? How does a company’s response to the needs of front-line workers affect consumer behavior? How does a business’s economic activity affect the environment?
While environmental, social and governance metrics are the hallmarks of sustainable investing, the importance of each metric can vary for different types of companies, Dixson says. If an investor is focused on oil and gas companies, for example, it’s especially important to model environmental risks. For online companies, it might be more crucial to take into account social factors, like engagement with customers. Governance is a metric for all companies, Dixson adds, but it might affect performance more if a business is a heavily regulated utility.
“Advisors need to educate themselves on the different approaches and the different options that they may have available to them for sustainable investing,” says Dixson. “And then they need to start a simple conversation with their client.”
Lessons Learned, Misconceptions Banished
Launched in Europe in 2017, the CANDRIAM Academy has provided over 8,000 hours of accredited training to some 4,000 members in 15 countries around the globe. A New York Life Investments Company, CANDRIAM is a global multi-specialist asset manager with over 20 years of sustainable investing expertise.
The newly launched U.S. Academy offers eight learning modules to provide a comprehensive primer on sustainable investing, providing students the ability to earn two continuing education (CE) credits. New modules will be available this year to focus on the social implications of recent global events, Dixson says.
One of the first lessons advisors learn at the Academy is to ditch any misconceptions that sustainable investing sacrifices performance, he says. According to Morningstar’s July year-to-date data, 72% of sustainable equity funds performed in the top 50% of their respective categories for the first half of the year and all 26 ESG index funds are currently doing better than their non-ESG index-fund counterparts.
The Academy also lends advisors confidence to have those much-needed conversations with their clients about sustainable investing, Dixson says. “This education allows advisors to better serve their existing clients, better serve their future clients and potentially build a bigger practice.”
Advisors also learn that there are a number of ways to apply sustainable principles to a portfolio to help clients become true long-term owners of the companies in which they invest.
“Sustainable investing allows you to be a more responsible owner of securities and bonds by engaging with companies, encouraging them, nudging them, demanding of them and voting for them to improve their practices,” he says. “You are being a true owner of that company over time.”