Financial advisors have the role of educating consumers on how their views on environmental, social and governance investments can be translated into their portfolios.
A study by New Zealand fintech Capital Preferences of more than 300 advised investors found that 59% said they placed a high importance on ESG factors in their investments, with the highest proportion being those who hold between $350,000 and $1.4 million in assets.
However, less than 40% felt their advisor was committed to helping them invest sustainably and only 20% said their advisor explained ESG concepts and terms to them.
While there was a desire to invest with ESG objectives in mind, there was a lack of understanding on how this might be translated into their portfolios.
The majority said they were unaware of concepts such as negative selection or impact investing and only one in seven said they were confident their portfolio was fully aligned with their values.
Only 34% of those who rated ESG as “somewhat important, important or very important” could identify how much they wanted to invest in ESG and 27% knew how they wanted ESG to be represented in their portfolios.
“Close alignment between an investor’s ESG preferences and their portfolio is essential for a high-caliber experience,” the firm said.
“This underscores the need for wealth managers and pension funds to educate and help investors and members discover their own ESG portfolios.”
This could be done by using educational tools, customer discovery tools, sustainability metrics, reporting on the sustainability of their investments, and alerting customers if a company they held stock in had a sustainability-related controversy. ‘ESG.