5 Reasons to Talk to Clients Now About Responsible Investing

With increased desire from investors also comes questions. To convey the role responsible investing can play in unlocking value beyond financial returns, advisors need be prepared to discuss opportunities with their clients. Here are points to make to clients curious about responsible investing:

1. The climate for responsible investing has never been more favorable. In addition to the landmark Paris climate protection treaty, the U.S. Department of Labor updated guidance for fiduciaries to consider environmental and related factors as part of their investment selection for retirement plans. Both are welcome steps in adoption of ESG analysis by firms and investors.
2. Studies suggest responsible investing can generate attractive returns. Responsible investing has been clouded by the notion that companies focused on good cannot achieve strong financial results. However, a recent Calvert study found that portfolios consisting of companies showing the greatest improvement in their ESG profiles outperformed both comparable broad market indexes and portfolios made up of companies with deteriorating ESG profiles.
3. ESG metrics have been shown to add value to both equity and fixed income investing. Studies by Calvert show that incorporating ESG factors in the analysis of fixed income securities may add considerable value in controlling risk and identifying opportunities for creating alpha. Using ESG screens for stock selection also can add value by helping investors avoid "bad actors" as well as by identifying attractive investment opportunities.
4. Companies can and should be forces for good. More and more we are seeing companies provide information on the social and environmental impacts of their businesses. The disclosure of this information and increase in corporate sustainability reports allows investors to encourage and reward companies focused on sustainable practices.
5. The role of a responsible investor is changing. In the past, socially responsible investors held corporations accountable by refusing to invest in those with unethical business practices. Today, we must actively advocate for sustainable and ethical business approaches. A successful responsible investor encourages corporate behavior that produces sustainable long-term value. Look for asset managers with a vigorous shareholder engagement program used to improve corporate behaviors. This can enhance investment value and contribute to a more sustainable and equitable world.

We are excited about the growing role investors and corporations are playing in advancing both economic and social goals. Advisors can help their clients invest in those companies that provide positive leadership in business operations and overall activities material to improving societal outcomes, including those that will affect future generations.