“Because the client is being driven by these concerns, we’re moving past the point where client interest is the only reason that the advisor has to engage, but the danger is that there are a lot of stories out there that say aligning portfolios with values won’t cost you money or can lead to better returns, and that’s not exactly the case,” said D’Auria. “ESG conversations with clients have to be nuanced enough to capture that, and we have to be realistic depending on the products.”
Thus, the conversations around clients should be both proactive and responsive on the part of advisors: Discover the client’s ESG interests and offer them a plan, with investments, oriented towards those interests, leaving aside discussions of risk-adjusted returns and potential alpha.
Envestnet offers ESG products across its asset management platform, and provides due diligence, tagging and information on asset managers who are qualified in the ESG space. The company also provides education materials for advisors and their clients on impact investing and different approaches to socially responsible and positive-screening ESG investing.
Envestnet is also developing more robust tools around ESG portfolio reporting, said D’Auria.
“The future of investment reports is going to look much closer to what is currently called an ESG impact performance,” said D’Auria. “Advisors will be expected to tell clients not just about their return and standard deviation, but also what impacts were made on their ESG interests versus a benchmark – how many fewer barrels of oil did they use, for example.”
D’Auria acknowledged that advisors can’t be expected to master all of the different possibilities for ESG-oriented investing, which are already moving beyond bespoke portfolios aimed at climate change or diversity impacts and index funds excluding “sin” stocks, impact funds that work directly with companies to effect change, or weighting companies with ESG bona fides more heavily.
Thus, technology like Envestnet’s platforms has a role to play in progressing ESG investing, from assessing the client’s interests, matching those interests to the right investment or product, to reporting the specific impacts that their environmental and socially responsible financial choices are having on the world and the communities around them.
“Technology has to give advisors the ability to leverage more comprehensive ESG strategies without having to become experts themselves,” she said.