Advisors who ignore the advent of ESG investing could miss out on some serious returns in their client’s portfolios.
At Schroders alone, ESG engagements have increased from less than 100 in 2008 to nearly 500 last year in 33 countries globally, according to Schroders data.
“Client interest has increased and so has the demand for reporting on governance,” said Jessica Ground, global head of stewardship with Schroders. “Our chief executive, Peter Harrison, has identified this as one of the key strategic areas for Schroders and an area where, if we are doing this analysis, it can help us come to better investment decisions.”
Environmental, social and corporate governance (ESG) investing has been discussed for many years as the next big investing fad. The idea involves measuring these three central factors to determine the sustainability and ethical impact of an investment in a company or business.
Following in Schroder’s footsteps, below are three things advisors need to know about ESG investing.
1. Expect More ESG products in 2017
An increasing number of scoring, indexes and rating systems are emerging to support a growing ESG values and belief system.
Current benchmarks and indexes include the Calvert U.S. Large Cap Core Responsible Index, the Dow Jones Sustainability U.S. Index, and several others.
“As interest by investors rises, the supply of products will grow to meet the demand,” said Peter J. Creedon, CFP with Crystal Brook Advisors in New York.
Just this year both Morningstar and Schroders introduced new ways to rank and score ESG investments.