Interest in sustainable investments among investors has increased, yet most registered investment advisors are still unprepared to recommend them to clients, according to a report from SEI.
One-third of 800 RIAs surveyed by SEI in late 2020 cited growing client interest in sustainable investing amid the Covid-19 pandemic and as a result of greater awareness of the need for racial equity.
Despite that, the knowledge and desire to recommend sustainable investments has been lacking among many RIAs, according to SEI, a global provider of investment processing, investment management and investment operations solutions.
Most RIAs are either uninformed or aren’t confident that they know enough about environmental, social and governance investing, while others express concerns over performance or greenwashing, which is the practice of spinning information to present an investment as environmentally friendly when, in fact, it may not be.
Nearly half, or 42%, of the RIA respondents said their clients express interest in sustainable investing “at least sometimes.”
Only slightly more than one-third, or 34%, said they have implemented sustainable investing strategies for their clients.
Jana Holt, global director for sustainable investing solutions at SEI, says RIAs have a key role in supporting their clients’ portfolio construction, so it’s crucial that they support their interest in sustainable investments.
“My instinct says there is pent-up demand for sustainable investments,” said J. Womack, director of investment products and services for SEI’s advisor business. “We can’t precisely measure it. It is sizable, though.”
Womack said advisors should ask themselves, “What assets could be at risk as a result of their inability to communicate with clients starting to form sustainable goals?”
The absence of a go-to information source on sustainable investments is partly to blame for the RIAs' lack of education, according to Womack. The materials that do exist tend to be jargon-laden, he added. “There’s a lot to parse through,” he said.
What’s grabbing clients' attention
Although 30% of RIAs cited performance as the biggest barrier to implementation of sustainable investing strategies, Holt says that perception is outdated and from the early days of the concept.
“What we see now is a real growth in innovation and a very different approach to sustainableinvesting that can be additive to the investing process,” Holt said.
RIAs who are interested in sustainable investing cite risk management as a primary motivating factor, highlighting the sector’s strength, according to Holt. Others have been recommending sustainable investments, usually at the behest of their clients, she says.
Clients tend to express most interest investing in environmentally-friendly energy sources compared to investment strategies that promote gender and multicultural diversity, but Womack believes that will change in the coming years.
“Environmental issues have been in the media longer, with higher intensity than social issues that are now getting that same degree of interest,” Womack said. “It indicates that as people become more educated about some of these big issues we’re facing and opportunities we have around equity and inclusion, they’re taking action with their dollars and expressing interest.”
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