Interest in ESG investing is not going to go away just because the market gets bumpy, according to a Morningstar study released today.

Advisors can use this “stickiness” to help clients look beyond immediate returns to a longer time frame, Morningstar said in “The Sustainability Stress Test: Investor Interest in ESG Holds Up Amid a Pandemic.”

Morningstar surveyed 626 people during the height of market volatility in late March and found that environmental, social and governance considerations remained important to investors. Investors continued to pay attention to their ESG preferences even during the uncertain times created last spring, the report said.

In addition, giving clients more information about ESG investing “helps investors be less fixated on chasing returns,” said Samantha Lamas, a Morningstar behavioral researcher who helped conduct the study. “This provides a new way for advisors to talk to clients to give them a fuller picture of investing” possibilities.

When adding information to what clients are told, the advisors should make sure the client is not overwhelmed and keep an eye on the diversification of the portfolio, Lamas said in an interview.

Specifically, “the ESG-oriented information seems to help investors focus less on past returns when making allocation decisions, which is a common shortcut for investors,” the study said. “In particular, it appears that ESG information may open peoples’ minds toward funds that otherwise would have been ignored or discounted.

“Previous research has shown that a broad swathe of investors are interested in sustainable investing,” the report continued. “We’ve found that even in the midst of tremendous market volatility, ESG is still important.” Discussions about ESG investing “can be quite useful [to advisors] to allow for a more balanced and meaningful discussion with clients. ESG helps investors look beyond past returns.”

The report cautioned advisors to “be careful however, to ensure that the underlying options presented to investors are properly diversified, since the addition of ESG information may cause concentration to a fewer number of funds.”

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