Client Demand for Sustainable Investing Grows

A third of RIAs in a new survey say they have experienced increased client interest in sustainable investing amid the pandemic and the racial equity movement, SEI reported Tuesday.

"COVID-19 and the racial equity movement accelerated the already pronounced investor effort to match their investments with their sustainability priorities," Jana Holt, SEI's global director of sustainable investing solutions, said in a statement.

"RIAs play a central role in supporting their clients' portfolio construction, so it's crucial that they are well positioned to provide the insight and support clients need to determine how they can best allocate in alignment with their values."

SEI conducted the survey in late 2020 among some 800 RIAs who answered questions about sustainable investing, which SEI defined as the alignment of investment objectives with social or environmental considerations. Approaches to sustainable investing may include environmental, social and governance integration, exclusions/negative screening and impact investing.

Client Demand and Preferences

The vast majority of RIAs in the survey cited client demand as the primary driver of incorporating sustainable investing strategies in a portfolio. Forty-two percent reported that their clients express interest in sustainable investing strategies at least sometimes.

RIAs with clients who express interest said demand is fairly balanced across millennials, Generation Xers and baby boomers.

Forty-seven percent of survey respondents said they were most interested in ESG integration strategies, while nearly equal numbers prefer impact and exclusionary strategies instead.

RIAs were nearly three times as likely to cite climate and climate-related issues, including alternative or renewable energy and natural resources, as priorities than issues such as multicultural and gender diversity.

Barriers to Uptake

Despite client interest, only 34% of RIAs in the survey said they had implemented sustainable investing strategies for their clients.

Twenty percent reported that they were unfamiliar with sustainable investing and did not plan to use such strategies with clients within the next two years.

Forty percent of respondents said they still did not know enough about sustainable investments to make suitable recommendations to clients.

Sustainable investment strategy performance is the biggest barrier to implementing ESG funds in client portfolios, according to 30% of RIAs, while 19% cited their lack of information and education.

Just 9% of RIAs pointed to greenwashing, the process whereby companies convey a false impression or provide misleading information about their products to make them appear environmentally friendly, as a concern.

"Our research demonstrates that RIAs are committed to addressing the rising client and prospect demand for sustainable investing, but don't yet feel prepared to deliver appropriate counsel or investment strategy," J. Womack, managing director of investment products and services for SEI's advisor business, said in the statement.

"It's critical that we continue to educate advisors so that they can confidently embrace the increasing demand and empower all investors to achieve their financial and sustainability goals."