5 ways to guide clients on ESG and impact investing

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Environmental, social and governance (ESG) investing has skyrocketed in popularity in recent years as clients seek to align their investments with their values ​​and drive positive change in the world. But more recently, ESG investing has faced serious obstacles, with political backlash and even legislation banning state authorities from investing public funds based on the criteria.

The tide turned quickly. As recently as 2018, black rock CEO Larry Fink emphasized the importance of socially conscious investing in his annual report. Letter to other CEOs. “Society demands that businesses, both public and private, serve a social purpose,” Fink wrote. “To thrive over the long term, all businesses need to go beyond achieving financial performance and demonstrate how they positively contribute to society.”

His comments sparked a rush to invest in ESG funds, pledging to funnel money into companies that benefit, or at least do not harm, the planet and humanity.

read more: 3 reasons why ESG remains important for asset management

Just a few years later, ESG investing has become a hot political topic. Many investors are raising money It ceased operations after right-wing politicians denounced the funding. Still, many of his ESG investments remain highly profitable. Over the past 10 years, the top 20 sustainable funds have earned an average annual return of 13.57%, according to Morningstar Direct. The average increase over the past 12 months was 18.29%.

“It is a misconception that sustainable investing underperforms,” says Peter Krull, Director of Sustainable Investing. Earth Equity Advisors, recently said financial planning Nathan Place. “The reality is that any high-quality sustainable fund can compete with traditional benchmarks.”

For financial advisors, one way to increase their power in advising clients on socially responsible investing (SRI) is to become a financial advisor. Certified SRI Counselor (CSRIC). The designation is overseen by the University of Financial Planning (a Kaplan company) and developed in partnership with the U.S. SIF, Sustainable and Responsible Investment Forum. According to Jennifer Coombs, who created Kaplan's original course, taught it over the years, and updated the curriculum multiple times, CSRIC trains financial advisors who can advise clients on socially responsible and impact investing. It is said that they are doing so.

read more: Can ESG come back from the dead?

Coombs said many CSRIC certifiers are already experienced financial advisors or certified financial planners but want to learn more about sustainable investing and ESG, adding that the CFP curriculum tend to contain less information about climate and environmental issues, he added.

“I would love to see CFP actually incorporate some of the climate change considerations into their insurance. I wish they would bring this up more often because it's so important,” she said.

As of December 2023, 1,315 students have enrolled in the program since 2018, of which 1,055 have graduated with CSRIC.

“That approximately 300-point difference is primarily due to college students (primarily Georgetown University and the University of Denver) who took CSRIC as an elective,” Coombs said in an email to Financial Planning, adding that all students will not take the final exam, he added.

What other ways can your company keep up with the rapidly changing world of impact investing? See below for the latest strategies, news and methodologies.