The consequences the pandemic has raged on their environment, their societies and their governments has brought to light a renewed interest in financial products with a conscience. That said, taking the next steps to find expert guidance on how to do so tends to leave them slightly dazed and confused. This… is a tale of two perspectives.
Epoch of belief or epoch of incredulity?
Advisor enthusiasm for the new product offering is a little harder to come by. To many, ESG is little more than a passing fad. Some have even gone so far as to express surprise that indices like the MSCI 400 Social Index have either met or outperformed benchmarks like the S&P 5002. That said, more and more client meetings – particularly with women, Millennials and Gen Z investors – touch on the topic of responsible investing. In fact, investors looking to discuss the option increased by almost 15% from last year3! So, what exactly is it that is diverting advisors from adopting the strategy with a little more heart?
Studies have revealed that one deterrent to advisor adoption is terminology and categorization4. Exclusionary screening. Impact investing. Ethical investing. Socially responsible investing. The list of responsible investment strategies looks extensive, but the consequence of this knowledge gap is that advisors may not be able to adequately respond to the investment objectives of their clients.
A short-term solution to the problem could be that ESG-agnostic advisors could weave partnerships with dedicated experts. This means that any ESG analysis of client portfolios would be outsourced to select advisors deemed ESG champions. Partnering with experts in the space may elongate the analysis process, but the resulting quality of service could ultimately see an improvement.
Significant training and education need to occur before advisors can confidently say they can respond to investors’ questions on the topic. Financial professionals must work together to ensure that their investors have a high-level understanding of the three pillars of ESG. When they hear “sustainable,” investors often think environment. Social and governance causes aren’t at the top of the list of priorities. Investors want to believe responsible investments are part of the future, but the true test lies in where to find market opportunities and gain trustworthy information.
Season of light or season of darkness?
Despite the varying views on the topic, we err on the side of hope for the future of ESG investing. According to a survey from RBC Global Asset Management Inc., it’s estimated that 63% of Canadians are interested on pursuing some type of ESG-related investment5. However, nearly 50% of investors don’t even know where to begin to get more information on how to go about making those decisions. This represents a huge opportunity: Canadian investors consider their advisors’ guidance to be of most value when considering ESG investments.
There is a clear client interest here to learn more about this emerging strategy: it’s the role of the advisors to better educate the investor by making sound investment suggestions and enabling them to make decisions aligned to their investment goals. The undeniable reality is that investors have access to more information on their investments and heightened awareness as to where their money is going and what activities it’s funding. A whopping 87% of Canadians believe ESG investing can even contribute to risk mitigation in these volatile time6. Advisors can safely assume that providing a repertoire of trustworthy ESG solutions and being able to speak to their merit would fulfill this investor expectation.
So… does the future hold a spring of hope or a winter of despair?
ESG practices are still struggling to gain advisor recognition. Those who have not yet embraced the trend still believe that performance may pay a price because of the smaller pool of options these portfolios can pull from. This alone sheds light on industry experts’ faulty assumptions; ESG can be integrated into an investment portfolio in a myriad of different ways.
Though historical performance is not indicative of future returns, responsible investments have demonstrated a fighting spirit; they’ve covered just as much ground if not more than their traditional counterparts… and it’s only the beginning.
The information and opinions herein are provided for information purposes only and are subject to change without notice. The opinions are not intended as investment advice nor are they provided to promote any particular investments and should in no way form the basis for your investment decisions. National Bank Investments Inc. has taken the necessary measures to ensure the quality and accuracy of the information contained herein at the time of publication. It does not, however, guarantee that the information is accurate or complete, and this communication creates no legal or contractual obligation on the part of National Bank Investments Inc.
NBI Funds and the NBI exchange-traded funds (the “NBI ETFs”, together with the NBI Funds, the “Funds”) are offered by National Bank Investments Inc., a wholly owned subsidiary of National Bank of Canada. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus of the Funds or the NBI ETF Facts document(s) before investing. The Funds’ securities are not insured by the Canada Deposit Insurance Corporation or by any other government deposit insurer. The Funds are not guaranteed, their values change frequently, and past performance may not be repeated. NBI ETFs units are bought and sold at market price on a stock exchange and brokerage commissions will reduce returns. NBI ETFs do not seek to return any predetermined amount at maturity.
Views expressed regarding a particular company, security, industry, market sector, future events (such as market and economic conditions), company or security performance, upcoming product offerings or other projections are the views of only AllianceBernstein Canada, Inc. as of the time expressed and do not necessarily represent the views of National Bank of Canada and its subsidiaries (the “Bank”). Any such views are subject to change at any time based upon markets and other conditions, which could cause actual results to differ materially from what AllianceBernstein Canada, Inc. presently anticipates or projects. The Bank disclaims any responsibility to update such views. These views are not a recommendation to buy or sell and may not be relied on as investment advice.
© 2023 National Bank Investments Inc. All rights reserved. Any reproduction, in whole or in part, is strictly prohibited without the prior written consent of National Bank Investments Inc.
® NATIONAL BANK INVESTMENTS is a registered trademark of National Bank of Canada, used under licence by National Bank Investments Inc.
National Bank Investments is a member of Canada’s Responsible Investment Association and a signatory of the United Nations-supported Principles for Responsible Investment.