Environmental, Social and Governance (ESG) investing is steadily growing, with female investors driving much of the interest. Retirement Director Marquette Payton discusses how financial professionals can approach conversations on ESG by conveying authenticity, staying informed of the latest sustainability trends and focusing on team diversity.
The roots of responsible investing, which later led to Environmental, Social and Governance (ESG) considerations, can be traced back to the 1800s. In the U.S., socially responsible investing saw increased investor interest in the 1960s and 70s, when the first mutual fund was launched. Since that time, we have seen an increased awareness of ESG considerations and a sharp rise in recent years of investment products and asset flows into sustainable funds.
Can you guess which often overlooked powerhouse is helping fuel this growth? If you said women, then you would be on the money – both figuratively and literally.
You’ve probably heard some of the statistics about the growing importance of this demographic in the context of financial planning. For example, women are projected to control about two-thirds of wealth in the U.S. by 2030.1 At the same time, studies show that women haven’t historically taken charge of long-term financial planning as often as male investors do. But women’s interest in ESG investing is starting to turn this tide.
A recent survey of RBC Wealth Management clients found that female investors are almost twice as likely as their male counterparts to say it is important that the companies they invest in integrate ESG factors into their policies and decisions.2 Another survey by MarketWatch found that female clients are more likely to prioritize ESG impact when considering what companies or funds to invest in, while male clients are much more likely to prioritize financial performance.3 Furthermore, ESG investing will likely become even more important to female clients as time goes on: In a recent report, Cerulli found that a majority of women in the U.S. under age 60 favor ESG investing.4
If you couple these statistics about the growing power of female investors with the studies that tell us women are embracing ESG investing, it builds a compelling case for making these types of investments a consideration for your practice. But there are some important things to consider as you prepare to engage in meaningful conversations with your female clients about ESG investing. Following are some ideas on how to approach those discussions and create a personalized strategy to better address your clients’ needs.
Understand what your female clients want. You are already proficient at asking questions as part of your discovery process. To take the conversation one step further, all you’ll need to do is ask some additional questions to uncover whether ESG investing is important to your female clients. Learning which specific areas your clients are passionate about will demonstrate that you care about what they value, and this will ultimately build trust, demonstrate your awareness that ESG investing matters to women and help you provide more tailored solutions. Keep in mind that 75% of women under age 40 – representing $5 trillion in under-leveraged assets – aren’t even working with a financial professional5, so this is also an opportunity to enhance your prospecting efforts if you are able to market yourself as someone who can provide investment solutions that resonate with women’s values.
Be your authentic self. As my colleague Taylor Pluss explained in a previous post, a key aspect of effectively engaging with female clients is conveying authenticity, and one area where this is especially important is in your discussions on ESG investing. Remember that it is normal to feel somewhat uncertain when having these conversations, simply because you may not have all the answers due to the fact that ESG investing is evolving so rapidly. But you can embrace this as an opportunity to come across as human and genuine, and to show your female clients that they are not the only ones who are still learning.
Sharing your own journey with ESG investing is another good way to convey authenticity and give clients something to relate to. However, it’s important to always keep in mind that a client’s experiences and opinions may be different from your own. Furthermore, some clients may not need any prompting at all: their values may become evident when discussing the metrics that are most meaningful beyond fundamentals when it comes to measuring the performance of an investment. Bringing concepts such as personal values and beliefs into the conversation can be a big paradigm shift for many of us in the financial services industry, but the impact is tremendous when it comes to connecting meaning to clients’ investments (not to mention the potential impact on society as a whole).
Commit to continuous education. While not always having all the answers is part of conveying authenticity, it is also critical to stay informed and continue to hone your knowledge of ESG investing. Transparency is a key aspect of these conversations, and of ESG investing itself. Clients who are seeking to align their values with their financial goals will want every assurance that their investments are being allocated according to these intentions. As such, it will be necessary to conduct thorough due diligence on products and product providers to ensure you are prepared to respond to questions with full transparency. Keeping up with industry best practices on ESG messaging is also key to demonstrating awareness of evolving issues and trends.
Consider optimizing your client service model. In 2018, Janus Henderson conducted a study in partnership with Kansas State University that looked at whether there is a preferred financial professional service structure and found that both males and females have a strong preference for a team approach. Furthermore, one of the most interesting findings in this research is that 65% of respondents overall said they prefer to work with a team that has both male and female leadership.
Team diversity is an essential best practice for engaging female clients and growing your female client base. If there are no women represented within leadership positions, it makes it harder to understand and cater to female preferences – especially when it comes to values-based investing. Having multiple genders and ethnicities represented on your team also conveys to clients that you value diversity and inclusion – which is itself one of the key tenets of ESG.
For more resources on how to effectively engage with female investors, I would encourage you to explore our Women and Wealth program.