Are you looking for a competitive advantage to propel your business to new heights? Well, look no further: The majority of Canadian investors would like their investment advisors to talk to them about responsible investing (RI), according to a recent report from Toronto-based NEI Investments. Even more compelling, if you do have this conversation, investors are more likely to trust you with their money. And in this extremely competitive marketplace, that’s good news for advisors.
For those of you new to the topic, RI refers to the integration of environmental, social and governance (ESG) issues into the selection and management of investments. It encompasses socially responsible investing, ethical investing, sustainable Investing, impact investing — and so on.
RI addresses many of the financial risks and opportunities that have been reflected in the concerns expressed by values-based investors for decades. In the NEI report, which was conducted by Environics Research Group in April, 92% of the 1,100 Canadian investors surveyed said that it’s important to choose investment products that are consistent with their values. In addition, 75% want their advisors to be aware ESG risks — and manage them accordingly.
In fact, many of those investors surveyed want their advisors to initiate a conversation about including RI in their retirement and investment portfolios. But in spite of these numbers, only 10% of advisors bring up the topic. Why is this? Well, I expect it has a lot to do with the myth that RI doesn’t generate the same performance as traditional investments — and NEI’s study confirms this as most investors and their advisors believe that RI will underperform their traditional investments despite evidence to the contrary.
In the RIA’s quarterly mutual fund reports (http://riacanada.ca/quarterly-reports/), there are top-performing RI mutual funds in every major category. And almost every comparison of RI vs traditional investment returns points to better long-term risk adjusted returns when ESG issues are taken into account.
Given the misconceptions on both sides, it’s not surprising that less than 20% of those surveyed have brought up the topic with their advisors. But in a world in which the financial impact of climate change and supply chain disasters, such as the factory collapse in Bangladesh last year, are seldom out of the news, investors are stepping up.
“Investors are picking up on the continual barrage of ESG issues in the news and this is concerning to them,” says John Kearns, CEO, NEI Investments. “This translates into a real sense of urgency about their investments and almost half of investors plan to initiate a conversation with their advisors about RI within the next year.”
The narrative of RI is changing. It’s not just about “my values” and “your values.” Now, it’s about reducing risk, recognizing opportunity and generating superior long-term financial returns while creating positive societal change at the same time. So, for advisors who develop expertise in RI, it’s a great business opportunity.
“Advisors who have not considered RI for their practices are missing an opportunity to blaze a trail and attract and engage clients who are extremely loyal to their personal values,” Kearns concludes. “That could translate into some pretty sticky assets over the long term.”