Morningstar Panel: Sustainable Investing is Personal Investing

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    In view of the flood of terminology, the marketing of investment products and the dizzying amounts of data, many consultants do not feel comfortable having the conversation about “sustainable investing” with their clients.

    Still, there’s plenty of research to suggest customers would appreciate it, said Cheryl Gustitus, executive vice president of Sustainalytics, a sustainable investment data provider owned by Morningstar, during a panel on sustainable investing at the Morningstar Investment Conference .

    The terminology surrounding the investment philosophy is the first obstacle, whether it is sustainable investing, impact investing, environmental, social and governance investing – the definitions and demarcations between them are not always clear.

    One way to get through the noise is to shape the conversation with customers in terms of “personal” investments, Gustitus said. That fits with what consultants are best at, she said. “Consultants are the best at interacting with their clients in person.” Creating portfolios that reflect their values ​​can be a natural part of the client relationship.

    “Definitions and terminology can or may not have a huge impact on a consultant’s success,” said Kristina Van Liew, managing director of Graystone Consulting. “But you can’t take a uniform approach.”

    Unlike traditional investment advisors, impact advisors have to think in three dimensions – risk and return, and impact. Consultants quickly learn that this requires a different conversation, a unique view of a client’s goals – and, in turn, a unique portfolio built on those values, and also a different approach to performance reporting.

    “Everyone’s definition of positive impact is different, so no two programs can be alike,” she said.

    The customer discovery process becomes much more important in sustainable investing, said Van Liew. “The advisor needs to listen carefully and think carefully about building the portfolio” that matches the client’s goals.

    “You don’t do that by just looking for investment products” or funds with the right ESG labels, she said.

    The rapidly growing amount of data on the environmental, social and governance qualities of investments adds to the confusion of the terms.

    “It’s a data race,” said Gustitus. “Not just securities coverage. But in terms of data points that underlie the mechanisms that allow advisors to report to their clients in a useful and meaningful way. “

    One panelist compared the confusion to the early days of ETFs or 529 plans that had to be carefully explained to clients.

    “It’s like these examples, but on steroids. Not only is this difficult to explain, it means something different for every investor, ”said Oliver Stracey, Executive Director and Head of Sustainable Investing Marketing at JP Morgan Asset & Wealth Management.

    Stacey said that JP Morgan has invested heavily in data aggregation and reporting on ESG data over the past five years, which can be used not just for impact investing but for all active portfolio managers across the company as this type of non-financial, but Disclosures that are still essential, for example on CO2 footprints or diversity in the boardrooms, are increasingly tied to investment decisions.

    “It’s still something of a niche business and has been largely rejected by the investment advisory community,” said Van Liew. But consultants who succeed in doing this will find the ability “in great demand”.

    “It creates more lovable and sticky relationships. Investments have acquired a new relevance, ”she said. But such a personal approach to a client portfolio means advisors can’t fake it with a standard mutual fund.

    “This is a category about authenticity. You have to be authentic to do the job, ”she said.

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