How to depoliticize ESG conversations

Alicja Brown is used to navigating contradictions.

The Edmonton-based advisor has clients who both support the policies of former U.S. president Donald Trump and invest according to responsible investing principles.

“How do we achieve this? One way is by depoliticizing that conversation,” said Brown, senior wealth advisor with Brown Investment Group, CIBC Wood Gundy. “But some of the challenges of late are the terms — specifically ESG,” she said.

Speaking on a panel Tuesday at the 2024 Responsible Investment Association conference in Vancouver, Brown gave the example of one client who asked her, “I don’t have any of that ESG crap in my portfolio, do I?” The client’s entire portfolio was constructed according to responsible investing principles.

Brown began by asking the client about his specific concerns with ESG. “When we dug a little bit deeper, I could really appreciate that there was a lot more to this,” she said. “There’s a lot of misinformation out there.”

This client was worried about the governance aspect of ESG, believing that ESG requires boards to appoint directors from underrepresented groups, regardless of their qualifications or competencies.

“That’s not how it works,” Brown said. But by not jumping in with an answer right away, and instead trying to understand where the client was coming from, she was able to allay his portfolio concerns.

“I lead with the client and their own objectives. And the other conversations [about values] flow from there,” she said.

Sustainable investing also may not be as polarizing as the public discourse makes it seem. For example, a recent study by Morningstar Inc. of more than 26,000 ESG-related Reddit posts found that 69% were neutral, with the remaining split about evenly between positive and negative sentiment.

The topics of discussion were primarily around sustainable investing themes, such as electric vehicles, renewable energy and oil.

“I have yet to meet someone who doesn’t care about clean air and water,” Brown said.

One of her clients, a conservative farmer in southern Alberta, “knows more about [clean air and water issues] than I do,” she said. “So, I just tie some of those concerns into what’s being done meaningfully in the investment portfolio.”

Brown also avoids inserting her personal beliefs into her client conversations or making assumptions about clients’ values.

She recently worked with a couple from Palestine whose families have been directly affected by the war in Gaza. The couple wanted to know if they were invested in weapons manufacturers. Brown told the couple their portfolio had always excluded weapons. She then dug deeper, asking if there were other exclusions the couple wanted, which generated further discussion.

“We needed to have a more meaningful conversation around where to draw the line,” Brown said. “It’s really important for us as advisors not to make assumptions and to draw that line ourselves, but instead to engage the client in conversation.”

CIRO’s guidance on sustainability conversations ‘not a rule’

Alexandra Williams, senior vice-president, member regulation and corporate strategy, with the Canadian Investment Regulatory Organization (CIRO), said the average financial advisor is focused on meeting their compliance obligations, rather than going above and beyond. Williams spoke during a separate panel at the RIA event.

In 2021, CIRO updated its know-your-client (KYC) guidance, stating that advisors should include ESG considerations when discussing investment objectives.

“It’s not a rule change,” Williams said. Still, “guidance is our opportunity to explain and give a little more context.”

The RIA’s investor opinion surveys consistently show that clients want their advisors to bring up sustainability more often than they do. Further, a recent secret shopping study found that 20% of advisors brought up ESG or sustainability considerations to the shoppers without prompting. Once the secret shoppers showed interest in ESG issues, this metric increased to about 63%.

Most advisors offered some ESG or sustainable investments. About 17% of the time, the secret shoppers considered those products a good fit.

Williams wasn’t surprised by the study. She said CIRO’s guidance on sustainability conversations “doesn’t trickle its way into the KYC process that would appear on an application form. Advisors are not required to ask a question in advance of a customer raising it. And I think that’s maybe what we’ve seen in some of the secret shopping outcomes.”

Williams said CIRO receives about 1,000 questions and comments per year from investors on various topics. So far, no investor has flagged to CIRO that their advisor didn’t ask them about sustainable investing.

Nonetheless, “the disconnect between what the rules say and what customers want [means], I think, there’s some bridging that probably has to happen here,” Williams said.

Disclosure: Advisor.ca was a media sponsor of the RIA Conference.