Page 18 - Investment Advisor June 2021

ESG HORIZONS

By Bernice Napach

How to Bridge the ESG Divide

Advisors need help from asset managers on how to frame these
investments for their clients, the Cerulli report notes.

espite increasing interest in benchmark ESG strategies and define the
investments focused on envi- boundaries of those strategies, and they
Dronmental, social and gover- lack the time and resources to do their
nance issues among investors, advisors own research into ESG strategies. On top
and asset managers, many advisors still of those difficulties is the “ever-expand-
are reluctant to offer ESG strategies in ing range of options that can quickly lead
client portfolios, according to a recent to decision fatigue,” according to Cerulli.
report from Cerulli Associates. Asset managers can help advisors adopt
Fifty-eight percent of more than 1,000 these strategies by educating them on the
advisors surveyed cited little investor benefits of ESG integration and the best
demand for their lack of ESG strategies, ways to broach the subject with clients,
while 44% of 1,200 retail investor house- and by differentiating their own invest-
holds surveyed said they preferred to ment solutions from others. Direct index-
invest in an environmentally or socially advisors surveyed selected Vanguard ing also can help bridge the ESG divide
responsible way. Eighty percent of inves- and 44% chose BlackRock/iShares, even between advisors, their clients and asset
tors reported a preference for investing though Vanguard has only five ESG managers, according to Cerulli.
in companies that are leaders in environ- funds available to U.S. investors and
mentally responsible practices. BlackRock has 28. ENVESTNET LAUNCHES ENHANCED
The Cerulli survey also stated that advi- Moreover, only about 16% of advisors ESG FRAMEWORK
sors tend to limit ESG investing to their rated Calvert (now part of Eaton Vance, Envestnet has launched an enhanced
high-net-worth clients, which Cerulli which has been acquired by Morgan ESG due diligence framework to evalu-
defines as investors with more than $5 Stanley) and Parnassus as having the ate equity and fixed income strategies on
million in investable assets, leaving out the best reputations for quality ESG offer- its platform. The enhanced framework
56% of households with investable assets ings. This despite the two firms hav- focuses on data from four key areas col-
between $100,000 and $250,000 who said ing invested exclusively in sustainable lected from asset managers via interac-
they would rather invest in companies that investments since their beginnings, tions and questionnaires involving ESG
have a positive social or economic impact. which date back to 1976 for Calvert and managers: firm-level ESG policies, ESG
“For responsible investing to fully 1984 for Parnassus. integration in the investment process,
develop and grow in retail channels, ‘The reality is that, as in other cases reporting on impact and engagement on
advisors and asset managers must fully when considering unfamiliar product ESG issues.
understand the appetite for ESG invest- types (e.g. active exchange-traded funds, These investments have become the
ing among retail investors. … Both asset alternatives), advisors often look to the fastest-growing segment of Envestnet’s
and wealth managers should seek to largest, most established brand names management money universe, increas-
make ESG investing more accessible as a proxy for quality,” according to the ing 98% in 2019 and 81% in 2020, accord-
across wealth tiers,” the report notes. Cerulli report. Fees also are a factor for ing to the firm. As of year-end 2020, the
Biggest Fund Managers Favored advisors and “the largest low-cost pro- Envestnet ecosystem has more than $20
When advisors do invest client assets viders have gained a solid foothold with billion in ESG assets under management
in ESG investments, they tend to favor middle market and affluent investors,” or administration in over 335,000 client
large asset management firms like according to Cerulli. accounts that are overseen by more than
Vanguard and BlackRock’s iShares divi- “Advisors need help framing ESG 17,000 advisors.
sion. When asked to rank the firms that investment decisions,” the Cerulli
had the best reputation for providing report notes. Bernice Napach can be reached at Adobe Stock
quality ESG offerings, about half the Many advisors find it difficult to [email protected].

16 INVESTMENT ADVISOR JUNE 2021 | ThinkAdvisor.com