Approximately ten years ago, with the mutual fund industry in turmoil, I was searching for a way to reinvigorate my practice. A friend's advice led me to take a closer look at companies focused on sustainable and responsible investing, and I got excited about the possibilities these funds presented. I never imagined that sustainable investing would change the nature of my practice and increase my annual production nearly 100%!

Clients expect their financial advisor to help them prepare for their future while anticipating trends that could develop into good investment opportunities. For a practice to attract and retain high-net-worth individuals, this kind of insight is all the more essential. 

During the next few years, existing sustainable technologies should be scaled to price points competitive with traditional technologies, especially in energy efficiency and water conservation. Advisors who build a niche in these types of investments now could take advantage of that trend. Obviously, whether or not sustainable investment strategies work in your practice depends on each client and his or her unique situation. 

The high-net-worth clients I work with are attracted to sustainable investing because they have gotten returns but they also want to invest in companies that reflect their values. But despite the quality of these companies and no matter how well-researched they are, a return is not guaranteed. 

To help you start integrating sustainable investment strategies into your practice, here are some key concepts and marketing approaches.

What Is Sustainable Investing? 

Simply put, sustainable investing integrates ESG (environmental, social and governance) criteria into a rigorous process of fundamental financial analysis. Such companies may be better business risks because their managers focus on long-term growth, require transparency throughout their organizations and promote clear policies about their environmental impact as well as workplace behavior.

Besides conducting in-depth research, firms that specialize in sustainable investing also engage in shareholder advocacy. They can have dialogues with a company on a variety of issues in order to encourage improvement with particular ESG issues. This appeals to my clients because they want to know that the businesses they are investing in care about the same issues.

The Business Case For Sustainable Investing

According to a 2010 report on sustainable investing trends by the US SIF Foundation (the Social Investment Forum), one out of eight dollars in the professionally managed U.S. stock market uses some type of ESG criteria in securities selection. That's approximately $3 trillion. In fact, from 2007 to the beginning of 2010, assets in sustainable investment funds increased more than 13% while broad market indices such as the S&P 500 fell and professionally managed assets grew less than 1%, according to the US SIF 2010 Trends Report.

Bloomberg now has more than 300,000 terminals around the world that provide corporate sustainability information to keep pace with the growing investor demand for ESG data. MSCI recently purchased two of the largest ESG analytics companies and started offering its own ESG indices and consulting services.

Alternative investors have also started to take an interest. The number of alternative vehicles (hedge funds, private equity, venture capital, and property and real estate investments) that use some kind of ESG criteria in their selection process grew by 285% between 2007 and 2010, says US SIF 2010 Trends Report. 

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