In Focus: Sustainable investing  

Case Study: How I talk ESG with clients

Case Study: How I talk ESG with clients

As an IFA who has been advising on sustainable investment for more than 25 years, the explosion of environmental, social and governance funds, initiatives, and articles over the past couple years has been fascinating to watch.

The interest in the topic cannot be ignored and, if you are not talking to your clients about it, inevitably someone else will. As a consequence of all the noise however, ESG fatigue is setting in amongst many in the advice community.

Like parents dreading the 'where do babies come from' conversation, initiating the ESG conversation with clients is proving to be sufficiently awkward that it is being deferred.

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Unfortunately, as if existing guidance is not sufficient reason to press on, Financial Conduct Authority labels are looming, and mandating the inclusion of ESG discussions surely cannot be far behind.

Mike Head is a director at advice firm Ethical Investors and managing director of research firm Ethical Screening






Add to that the requirements under the consumer duty, and dare I suggest that it is time to have that chat?

So, the questions are: how to do it, how to record it, and what solutions to use. This is very much an ESG/sustainable investing 101 article, with the intention of helping advisers to take their first steps into this world.

Initiating conversation

Asking clients or potential clients if they mind where their money is invested will not result in a negative outcome.

Some will be fascinated and pleased that the subject has been raised, others will find it entertaining or possibly even ridiculous. Neither outcome is detrimental to the relationship.

If you are accepting new clients it makes sense to begin discussing the subject with them rather than with existing clients.

New clients will not ask the potentially awkward 'why haven’t we discussed this previously?' question. Furthermore, damaging existing relationships is more impactful than losing potential new clients.

I would not recommend asking 'how do you feel about ESG' or something similarly jargon heavy. An easier way to start the conversation would be: 'Have you ever wondered where your money is invested?' or 'do your mind where your money is invested?'.

As part of your conversation with a client, this feels like a natural and logical inclusion.

When it comes to existing clients, address the subject at review stage. There are lots of ways that you can make it possible to have the conversation without it looking like you did not really care to find out.

Start by saying 'this is something that we're now looking at', 'it's a new initiative', or 'it’s something that we've been monitoring'.

Not having the conversation could be detrimental. To suddenly discover that someone you have been dealing with has not bothered to find out that you are actually serious about the environment is going to be quite a tricky conversation.

Having and recording this conversation covers the compliance issue – by asking, you avoid the risk of comeback if they have the sustainable investment conversation elsewhere.