What I’m Telling My Clients About Sustainable Investing

What I’m Telling My Clients About Sustainable Investing
What I’m Telling My Clients About Sustainable Investing

Taiyou Nomachi/ Getty Images

Sustainable investing has become an increasingly more common pursuit among investors. This reflects a growing awareness of the impact investments can have beyond financial returns.

According to a report by Morgan Stanley, more than three-quarters (77%) of individual investors globally say they are interested in investing in companies or funds that aim to achieve market-rate financial returns while also considering positive social/environmental impacts. However, navigating sustainable investing isn’t always straightforward. 

As a financial advisor, many of my clients want to align their investment dollars with their values. This comes in different flavors for different people. Furthermore, I have clients who initially ask about it but eventually opt not to pursue it.

As with any financial decision, I want clients to understand the tradeoffs of sustainable investing before deciding one way or the other.

Key Takeaways

  • Clients are increasingly seek investments aligned with their values, though some opt not to pursue this route after considering tradeoffs.
  • Sustainable funds often avoid fossil fuel investments, though performance may temporarily lag during periods of rising oil prices.
  • There’s no “perfect” investment lineup, so it’s important to weigh which causes mean the most to your client.

What I’m Telling My Clients

What I tell my clients is that there are easily accessible, value-aligned investments available to all. We can get very specific with their portfolio, which can make it both easier to be a sustainable investor and simultaneously more difficult to choose among the strategies or causes that are most important to them.

There are several research tools now available to advisors to help find the investments that are truly walking the walk. I subscribe to Ethos ESG and have looked at others like Fidelity’s ESG Pro and YourStake. The goal is to weed out those that are Greenwashing, by including terms like ESG (environmental, social, and governance) in the title of their funds. Most also include an assessment to help clients get more specific about what they’d like to see or avoid in their portfolios.

Many sustainable funds avoid investments in fossil fuels, which is probably best for the planet long-term. But I tell my clients there will be periods when their performance will lag, specifically when oil prices rise. And while oil prices are currently on the downfall right now, they need to be OK with when they uptick.

The other part of the conversation is making clear that it’s impossible to have the “perfect” investment lineup.

Years ago, I had a client who wanted to be sustainable. We had her in several funds, including one that held companies with women in leadership. She asked about specific company holdings, and when we looked, she was appalled that General Motors was included because she wanted to avoid companies encouraging reliance on fossil fuels. However, it was incorporated because Mary Barra was GM’s CEO, thus fulfilling the woman-run goal my client desired. Ultimately, she had to decide which issue was more important to her.

The Bottom Line

Sustainable investing is increasingly sought after, as my clients are looking to incorporate value-aligned companies into their portfolios. While there is no magic formula, accessible tools and strategies exist to help strive towards this mission. Ultimately, understanding that no investment lineup is perfect and weighing the options available will empower your clients to make informed decisions that reflect their values and financial goals.

Read the original article on Investopedia.