The ABCs of ESG for advisors

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ESG (Environmental, Social and Governance) investing as an asset class appears regularly in the business news media, but investors are often unaware of what it means. Here’s why it is suggested to present the topic of ESG investing in your advisory practice, and the ABCs of how to go about it.

In many cases, a conversation about ESG investing may not make a difference in a client’s final investment decision. However, it will almost always create an opportunity to learn more about their values and priorities, to deliver value-added education, and to deepen your overall relationship. For these reasons alone, it is a conversation worth having.

Before we go further, here’s a quick review of the environmental, social and governance criteria that make up an ESG score:

  • Environmental relates to a company’s impact on the physical environment. This impact can be something obvious, like a manufacturing plant that pollutes a local river, or something less obvious, like a multinational company with a large carbon footprint from frequent executive air travel.
  • Social relates to a company’s direct impact on people. This could mean the wellness of their employees, their influence on surrounding communities, their involvement in the world’s conflict regions, or the safety of the people working in their global supply chains.
  • Governance relates to how a company is managed. Good governance can mean having strong financial controls, a proper code of conduct, a diverse leadership team and board of directors, and a history of compliance with applicable laws and regulations.
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Perhaps the main takeaway is that, in the past, environmental, social and governance criteria were generally not measured or reported, and today they are considered important by many individual and institutional investors.

Communicating and integrating ESG with your clients

Here is an ABC approach to having productive client conversations on the topic of ESG, and integrating what you learn into their financial plans.

A is for Asking about values

Certain topics within ESG can be sensitive or politically charged, such as racial dynamics and climate change. As a result, some advisors have found that it is best to begin with open questions that can reveal a client’s values and priorities without mentioning the concept of ESG at first.

You might start by asking if they make any charitable donations or do any volunteer work. If you were to find out that a client donates to Greenpeace, for example, it would give you a strong clue that they are concerned about the environment. This could lead naturally to a conversation about how to reflect that issue in their portfolio.

B is for Being goal-oriented

Depending on what you learn about a client, it might make sense to include an ESG option among your portfolio recommendations - but only if it truly fits with their overall investment goals. The client’s financial goals, investment time horizon and risk tolerance, , must remain the primary investment consideration.

For example, if a client has a very low risk tolerance or short time horizon, a fixed income portfolio or GIA might be the only option that makes sense. Conversely, a young investor with an extended time horizon and a higherrisk tolerance might want to maximize their growth potential.  AnESG fund may only be appropriate if it is expected to deliver that result.

However, there’s something else to consider: Many of the world’s leading public companies now follow ESG criteria themselves. As a result, even if an ESG-focused fund is not the right fit for a client, it is likely that many or most of the companies in their portfolio will be operating in accordance with ESG criteria.

C is for understanding the Costs

Some clients might be very enthusiastic about ESG investing and want to take it even further, such as sustainable or “green-themed” funds that completely eliminate certain industries or focus only on certain types of investments.

While these alternatives may be suitable for a portion of a client’s portfolio, it’s important to understand the potential costs. The narrower focus of these funds can mean less diversification, and this generally translates into higher risk - without any guarantee that this higher risk will be matched by higher returns.

Perhaps the best way to navigate this situation is to bring the conversation back to the client’s goals. We believe that most investors can find a solid compromise between the ideals they want to uphold and the financial goals they ultimately wish to reach.


ESG investing has changed the corporate landscape and attracted a lot of attention lately. As an advisor, there is an opportunity to help your clients understand its opportunities, its limitations, and where it fits in their financial plan. As always, Beneva is here to support you with investment funds and portfolio solutions that you can recommend with confidence.