Achieving Success through ESG

How do successful advisors use ESG to connect with prospects and strengthen relationships with clients? We work with hundreds of advisors that walk clients and prospects through a personalized ESG journey. Based on what we’ve seen, here’s what you can do:

1. Listen to the client's values

 

A client that can have an honest conversation about their values, and feel like their advisor is taking these issues seriously, builds trust that their advisor can help them align their investments with their values. There are two ways to have this conversation.

An advisor can present a client with a menu of options and ask the question: "what do you want to invest in, and what do you want to avoid investing in?" This conversation is great for clients who have already thought about how their values might translate to investments, and know exactly what they're looking for. They'll want to fully customize their portfolios to their expectations.

But most clients are still taking their first steps in ESG, if they've even heard of it. Menus can overwhelm clients, invite fears of judgement, and don't lead to rich conversations. We've found that a behavioral questionnaire helps advisors catalyze conversations with clients and form deeper connections.

Example behavioral questionnaire used by YourStake

Since ESG means different things to different people, you’ll need to parse out what a client is specifically looking for if they mention that they’re looking for an ESG solution (more on that in another article soon!). Understanding what a client cares about most can help you balance trade-offs in their ESG solution. For example, a client that prioritizes climate change may be happy investing in renewable energy companies even if they have less board diversity. A client whose mother died of lung cancer might not want to own any fund that owns a tobacco company, no matter the financial performance of the fund.

2. Diagnose the client's existing portfolio according to their values

Once you know a client’s values, the next step is to present the client with information about how their current portfolio performs according to those values. Clients become much more motivated to hear about an ESG solution when they understand how their portfolios fall short on their values. Many times a client will not even realize that their investments are tied to, for example, labor violations or animal testing until you present that data.

There are two strategies for presenting a diagnostic to a client. First, some advisors like to show all the data that is broadly related to a client’s values. This strategy helps you demonstrate your grasp of the complexities of ESG. Other advisors prefer to focus on 3-5 metrics that they find most compelling and tell stories about how companies in a client’s portfolio might be contributing to the asthma epidemic with examples from specific companies. Of course, the best strategy to present information also depends on the personality of the client. 

At this point, your client may be wondering how you can guide them to a portfolio that better aligns with their values. On to step 3. 

3. Show a side-by-side comparison of where the client's portfolio is, and where it could be.

Now that you’ve diagnosed a client’s portfolio according to their values, compare their existing portfolio to your proposed replacement. There are a number of ways to come to a recommended replacement, which we’ll cover in a subsequent post.


For this step, we recommend getting as tangible as possible. 

  • DON’T: Show a numerical portfolio score, for example 7.3/10 for your ESG portfolio vs. the client's existing portfolio score of 4.6/10. While this may seem like a simple way of drawing a comparison, scores don't often inspire action. Clients want to know how you can address the issues that they care about.

  • DO: Show impact.  Instead of numerical scores, show the impact in terms that clients can relate to. For example, illustrate that switching portfolios would eliminate fossil fuels from the portfolio while making the client responsible for 15 fewer asthma attacks per year and 210 more meetings led by women. These types of tangible metrics can produce an immediate emotional resonance and intuitive understanding.


4. Stay in touch

Once you’ve talked about ESG with your client, they’ll want to stay up to date on the impact of their portfolio. Periodic impact update reports offer an engaging complement to quarterly financial reporting, and reminds clients that in addition to working toward their financial goals, their investments are always contributing to their social and environmental values.


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