Experts from Morningstar, RIA Canada, and Odlum Brown discuss the evolving landscape of responsible investing
In a roundtable discussion with Wealth Professional, industry experts Trevor David from Morningstar Sustainalytics, Patricia Fletcher from RIA Canada, Ian Robertson from Odlum Brown Limited, and Ian Tam from Morningstar Canada examined the current landscape and prospects of responsible investing.
Tam, who hosted and moderated the webinar, emphasized using enhanced information and engagement techniques to deepen relationships with Canadian retail investors.
Canadian advisors have a unique opportunity to deepen their engagement with investors by addressing climate change and its impact on investment choices.
A gap exists between investor interest in sustainable investments and the relatively few assets currently managed in this space. Advisors can bridge this gap by identifying opportunities that align with investor goals.
The appeal of sustainable investing grows with the wealth transfer to younger investors who align their financial goals with personal values. Today’s investors seek both positive impacts and competitive returns.
Changes in climate transition and reporting standards benefit investors by providing clearer insights into how investments contribute to environmental goals.
Tam emphasized using enhanced information and engagement techniques to deepen relationships with Canadian retail investors. The significant wealth transfer from baby boomers to millennials and Gen Z, who prefer sustainable investment products, underscores this need.
The distinction between intent and outcome in sustainable investing funds is another area where advisors add value. Scrutinizing what a fund claims versus its actual actions helps advisors make informed product recommendations that reflect clients’ ethical and financial objectives.
Fletcher noted the strong appetite for responsible investing among younger investors despite a knowledge gap.
“We see that 70 percent of respondents know little or nothing about RI, with 21 percent having never heard of it. However, 82 percent of those aged 18 to 34 expressed a strong interest in learning about RI and investing in it,” she said.
This highlights a massive opportunity for advisors to educate clients about sustainable investing options.
Robertson stressed the importance of aligning investment strategies with clients’ values.
“Clients often bring up their values during conversations, which helps in tailoring investment portfolios. This alignment not only meets their ethical expectations but also fosters a stronger connection to their investments, potentially leading to more stable investment behaviour,” he noted.
David encouraged advisors to proactively discuss sustainable investing.
“Instead of waiting for clients to express interest, advisors should assume this is a topic worth bringing up. The reality is that interest in sustainable investing exists on a spectrum, and even a partial allocation to sustainable funds can be significant,” he explained.
Education is crucial in bridging the knowledge gap between investors and sustainable investing options. Fletcher pointed to RIA Canada’s efforts, including the RIA Digital Academy, to educate advisors.
David mentioned the CFA Institute’s resources, such as the climate investing certificate and the certificate in ESG investing, which help improve advisor education.
David discussed the importance of consistent and transparent climate risk reporting. Less than half of Canadian companies report their scope three emissions. Regulatory efforts, like those by the International Sustainability Standards Board, aim to standardize these disclosures.
Robertson highlighted the need for rigorous analysis to ensure sustainable investment products deliver on their promises without engaging in greenwashing.
“We look at the analytical integrity of new products. Is this delivering what it promises? Is there potential greenwashing? These are critical questions we need to answer,” he explained.
Addressing the myth that sustainable investing compromises financial performance, Fletcher and Robertson emphasized that responsible investing could lead to better risk-adjusted returns.
Fletcher stated, “At this point, most investors recognize that responsible investing is an opportunity for better risk-adjusted returns. It’s about aligning with values while also achieving financial goals.”
Tam highlighted the importance of behavioural coaching by advisors, which can significantly enhance investor returns by encouraging them to stay invested.
By integrating sustainable investing principles, advisors reinforce the importance of a long-term investment perspective, promoting steadier participation in the markets.
Overall, advisors play a crucial role in mainstreaming sustainable investing and fostering informed discussions. Understanding the nuances of different strategies, maintaining transparency, and providing effective education are essential to help investors make informed decisions aligned with their values and goals.
