The discipline of investing is evolving, with Environmental, Social, and Governance (ESG) criteria taking an increasingly prominent role. Investors are calling for ESG more proactively with each passing year, and we’re finding a growing swath of financial advisors searching for the right way to talk about it.
To be effective and strike the right chord, advisors should be thoughtful about how they communicate about ESG. Consider a few best practices for marketing ESG:
Know your stance:
ESG may be new territory, and it can be tempting to paint it with a broad brush. But there are a number of reasons that ESG has become entrenched: it’s a risk management tool, it helps identify opportunities, it helps uncover bad actors in social and environmental contexts, and some view it as a more sophisticated screening tool for socially responsible investing.
When advisors can articulate why they use ESG data or funds, it provides a platform for further discussion and credibility amongst clients. In essence, the statement that “we use ESG” is not enough, and only leads to more questions. Advisors should be prepared to elaborate with, “We use ESG because…”
Be authentic:
That statement and the message advisors convey about ESG must also be authentic. The industry is awash with examples of greenwashing – companies claiming to use ESG as part of a sustainable investing solution, but in reality just “talking the talk” without real substance.
To gain traction, advisors must know the answer to “why.” This is especially true when speaking with the newer generation of clients. Younger investors are skeptical of the financial industry and all too ready to be turned off when they believe they’re being lied to or sold on false pretenses. Think through your message. The more authentic it is, the more it will resonate with your audience.
Frame your approach:
The most appealing element of ESG is that at its core, it is one thing: data. That data can be used to support a number of investment themes, and advisors can use some of these to capture their own approach.
ESG data can be used primarily to provide a deeper dive into the health and long-term prospects of an investment. It can help identify companies that are addressing climate change. It uncovers those that prioritize fair employee treatment and board diversity.
If there are themes that an advisor feels passionately about, they should lean on those to help illustrate the “why” behind ESG. This does not mean that a financial advisor must change their practice to be mission driven or become an evangelist for change. On the contrary, their approach can show how ESG can be used to support specific directions for them and for their clients.
We expand on these ideas in the recent RIA Channel series, the ESG Practice Playbook. The course is available on demand HERE; we encourage you to check it out or to contact us with questions.
