Friday, June 8, 2012

Gateways to Impact

The Gateways to Impact report released this month provides information from their industry survey of financial advisors on sustainable and impact investing. The research was supported by Calvert Foundation, Deutsche Bank, Envestnet, Hope Consulting, Rockefeller Foundation and Veris.

I’m going to focus on some of the more interesting findings, ones that I think apply in Canada as well.

Because of the lack of clarity around what is SRI, what is sustainable investing, what is impact investing, the survey itself did not use a specific term, only a broad frame that was used as context for several survey questions: 'Investments or investment strategies that seek to generate a financial return and positive environmental and social benefits. These range from investments in corporations with best-in-class environmental, social, or corporate governance practices, to investments in companies that work on social or environmental issues, such as access to clean water, poverty alleviation, renewable energy, and others.'

The top barriers identified in the report seem to be the same barriers we face in Canada.

‘Many financial advisors do not fully engage in sustainable investing even if they are interested in sustainable investing and are already active in the market. Advisors are consistent in their reasons for not recommending sustainable investments. The top barriers that hold financial advisors back from recommending sustainable investments are (% of advisors citing barrier):

1. Belief that sustainable investments have insufficient track records (50%) and weak financial performance (47%)

2. Perception that there is insufficient client demand for sustainable investment products (45%)

3. Lack of access to the quality research and information, and lack of comfort advising their clients on sustainable investments (both 42%)
On client demand, 40% of advisors think that at least a fifth of their clients are interested in sustainable investing. However, they have little real information on clients’ interest, and on average have talked about sustainable investing with only 15% of their clients.’

Astoundingly, especially compared to the Canadian market, 47% of advisors surveyed have clients currently engaged in sustainable investing, and 24% of advisors report that they have recommended a sustainable investment product to clients within the last three years. I would guess that this sample might be a little skewed, as those numbers seem high even for the US retail market, and don’t seem to dovetail with the rest of the research results.

There is a useful segmentation of advisors as Engaged, Clearly Interested, Curious, Doubtful and Uninterested. The top three recommendations for wealth management firms were:

• Target advisors with high levels of interest or current activity in sustainable investing.

• Provide advisors with guidance on how to build their expertise in sustainable investing.

• Position sustainable investments in ways advisors prefer: speak to the reasons for advisors’ interest in sustainable investing, positioning expertise in the field as an opportunity to build one’s practice and know that advisors currently tend to refer to the sustainable investing tested in this research as “responsible investing,” “socially responsible investing,” or “sustainable investing.”

The research bears out a trend we have seen in Canada, which is that SRI is not an all or nothing proposition for advisors or for their clients. Advisors would recommend sustainable investments to roughly one-third of their clients and would allocate 10%-20% of those portfolios to these products.

The report concludes that ‘Financial advisors show significant interest in sustainable investing, and for many advisors that interest is rooted in building their practice by staying ahead of the curve, differentiating themselves from their competition, and better meeting the needs of their clients. However, most do not sufficiently understand the market to recommend these products to their clients. Advisors need more education, especially around financial performance, client demand, and where to find quality information, to become more comfortable.’

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