Making sustainable investment part of your client conversions

article

More than a trend, sustainable investments are here to stay. Previously favoured by millennials and women, they’re now popular with all genders, age groups and most income classes1, with 47% of investors frequently choosing sustainable investment funds rather than funds that don’t consider sustainability factors2.

There’s been a lot of research into sustainable investing. A recent study by Schroders revealed 77% of people would not invest against their personal beliefs, and that sustainable investments are attractive due to the combination of positive environmental impact and high return potential.

However, it’s interesting to see that 45% of people say their financial adviser only provides them with information on sustainable investing when prompted. This is a huge opportunity for advisers.

Talking to clients about sustainable investing

In a difficult marketplace, incorporating sustainable investments into your core service offering is an effective way to differentiate and add value for clients. Talking to your clients about their interests and concerns could potentially offer a new and effective way to engage with them and build long-term relationships.

It’s also a key tool for attracting new clients and potentially a way to expand into segments you haven’t previously serviced. 

Rather than jeopardising your fiduciary duty, financial advisers have an increasingly important role when helping clients understand and explore sustainable investing. Research shows 90% of Australians believe it’s important for financial advisers to invest responsibly and ethically, and 86% believe it’s important for financial advisers to ask about their interests and values concerning their investments3.

Understanding how an investment is sustainable

The investment approach of sustainable investments varies. They may include a focus on an asset’s sustainability criteria, as well as its ability to deliver financial returns.

At BT we think about sustainable investments in two ways.

  1. Investments that integrate sustainability
    These consider sustainability in the investment process, through a combination of environmental, social and governance (ESG) integration, asset stewardship and/or exclusions (negative screening), and typically use the management of ESG risks to target improved risk-adjusted returns. 
  2. Investments that prioritise sustainability
    These prioritise sustainability outcomes rather than returns as part of the investment process, eg investments that meet specific environmental or social goals.

Take the next steps

  • BT Investment Solutions (BTIS)
    BTIS delivers an institutional grade investment management capability across a range of solutions, from low-cost index portfolios to actively managed strategies.

1. Are they focused on not investing in companies whose products or behaviours don't align with their own ethical beliefs or values?

Values-driven

Consider investments that exclude activities, products or companies of most concern to your client.

2. Do they want to make a difference by investing in companies that provide solutions to global problems like water supply or energy consumption.

Impact-driven

Consider introducing an allocation to investments that have an impact, objective, or employ a positive screen

3. Are they most interested in investing in companies that may have been better risk/return profiles through good ESG management practices?

Returns-driven

Consider investments that articulate how ESG integration and asset stwardship impacts their investment process, for example through an Sustainable Investment Policy.

Sustainable investing is a way of connecting with customers through their hearts, minds and wallets and with the right level of knowledge, it could be a rewarding way to connect with clients and give them greater confidence in their investments.

Finding the right type of sustainable investment for clients

We believe a sustainable investment approach is fundamental to providing long-term value for investors. Over the long term, appropriate consideration of ESG factors in the investment process can help drive better financial outcomes and positively influence risk-adjusted returns.  

When you’re reviewing a manager’s approach to sustainability and ESG impacts, two things are critical.

1. Is the integration of ESG factors in the investment process appropriate and relevant for the investment strategy being considered?

Consider the manager’s beliefs around ESG and sustainability and how these are reflected in its investment process. Is it a signatory to the Principles for Responsible Investment (PRI) or other initiatives? 

Does the manager engage with the management and boards of the companies or assets it invests in? Do equity managers vote their proxies and are active fixed interest managers using engagement to inform their process?  


These types of questions will help you understand how a manager approaches ESG risks and opportunities, and you may decide to use this to set some minimum criteria for responsible investment across your portfolios.

2. Does the process for integrating ESG factors align with the purpose and intent of the investment strategy?

Managers use different investment strategies and approaches to address ESG factors or sustainability outcomes in their funds, so understanding what the manager is trying to achieve and how they intend to do it can help determine if an investment is suitable for a client’s portfolio. 


Become familiar with the terminology a manager uses to describe its process (ethical, sustainable, positively screened, ESG integrated)? Does the process align with what your client is expecting, and would it fit into their portfolio? 


Understanding these two points will allow you to make more informed decisions when selecting the right type of sustainable investment for your clients. 

Building a sustainable portfolio

Rather than an ‘add on’, most mainstream investments now have a clearly articulated approach to managing ESG risks. You can find sustainable investment options across most asset classes, which enables you to build core diversified portfolios of sustainable investments.


However, some sustainable investments are better suited as a smaller, satellite allocation. Thematic or impact investments that focus on generating positive outcomes in areas like renewable energy or social housing, may provide a strategic tilt for clients who want to use their money for good, by investing in opportunities to develop social and environmental solutions while also generating solid financial returns.


Clients will have their own views on what sustainability means to them and how important it is across their investment portfolio. You might want to add a sustainable investment to their existing portfolio, review the sustainability credentials or their current investments, or build them a completely new sustainable portfolio. But this doesn’t mean you need to adopt a different strategy for every client. When incorporating sustainable investments into a portfolio, the same principles apply to building any diversified portfolio, and through deeper engagement with your clients, you’ll likely see some common themes, which may help you create suitable model portfolios.


There are several excellent tools available to help you identify companies or investments that are conscious of the environment and undertake the good governance and social standards your clients desire. At BT, we’ve partnered with Morningstar and Sustainalytics to provide ESG research tools on BT Panorama that highlight an investment’s exposure to ESG risk and allow you to consider the sustainable approach of companies when making decisions about investments. You can also see all the investment options on the BT Sustainable funds list.  

For more information about sustainable investment, visit BT Academy to stay up-to-date with events, articles, news and the latest trends. 

 

Most income streams are sourced from account based pensions and insurance companies (annuities) with the same and concessional tax structure for both.
Technical resource
The rate of social security payments are affected by an asset and income test. Generally, the test that results in a lower payment is what determines the rate payable.
Technical resource
A Regulation has now been registered to increase the age when the work test will apply to 67 and also the upper age limit for spouse contributions to 75.
Technical resource

 


Information current as at 27 September 2021. This information was prepared by BT, a part of Westpac Banking Corporation ABN 33 007 457 141 AFSL and Australian Credit Licence 233714 (‘Westpac’). This information does not take into account any personal objectives, financial situation or need and so you should consider its appropriateness, having regard to these factors, before acting on it. This information provided is factual only and does not constitute financial product advice. Before acting on it you should seek independent advice about its appropriate to your and your clients’ objectives, financial situation and needs. Apart from any interest investors may have in Westpac term deposits, Westpac securities, the BT CMA or the BT CMA Saver acquired through the Panorama operating system, an investment acquired using the Panorama operating system is not an investment in, deposit with or any other liability of Westpac or any other company in the Westpac Group. These investments are subject to investment risk, including possible delays in repayment of withdrawal proceeds and loss of income and principal invested.  Westpac and its related entities do not stand behind or otherwise guarantee the capital value or investment performance of any investments acquired through the Panorama operating system. This communication has been prepared for use by advisers only.  It must not be made available to any client and any information in it must not be communicated to any client. This document provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relief upon as such.