Many Advisors Avoid ESG Strategies Despite Investor Interest

It may also be necessary. About 41% of affluent households, defined by Cerulli as those with $2 million to $5 million of investable assets, and 46% of high-net-worth households — those with more than $5 million to invest — favor environmentally and socially responsible investing, according to the Cerulli report.

Moreover, in 2017, 46% of investor households overall reported they prefer an environmentally and socially responsible approach to investing, and the percentage jumps to over 60% for investors under 39.

As a result of growing investor demand, Morgan Stanley, Envestnet PMC, Merrill Lynch and Raymond James have built ESG and impact investing platforms for advisors, and many mutual fund companies like Vanguard and Fidelity have also entered the space, helping to bring ESG investing into the mainstream. Those efforts, in turn, have led more advisors to consider ESG and SRI strategies.

To expand their use of such strategies, Cerulli recommends that advisors study the approach of many HNW and ultra-high net worth focused practices — specifically, multifamily offices — to ESG investing. In those practices, conversations around ESG, impact investing and values are becoming a standard part of investment policy discussions.

If advisors have those conversations at the beginning of the advisor-client relationship, they can  deepen the relationship early on, gaining a fuller understanding of client preferences in their financial planning and learning what types of ESG strategies may be the best fit for investors.