Where are Advisors on the ESG Adoption Curve?

To say ESG has hit an inflection point would be putting it mildly. Flows into sustainable funds quadrupled to $21.4 billion in 2019. The first half of 2020 has nearly eclipsed that mark, with flows totaling $20.9 billion, according to Morningstar figures. But amid this surging demand, where do advisors fit?

A few studies show that while many of the largest advisors are utilizing ESG strategies, there is still room for advisors to pivot their practice toward it. We looked at some of the latest research on advisor of adoption of ESG principles in our latest whitepaper, ESG Due Diligence: How Advisors Can Navigate the Growing Field of Funds. A few data points stuck out:

• First, leading advisors are quickly adopting ESG. An Ignites Research survey of the Financial Times Top 400 B/D advisors and Top 300 RIAs found that 69% of the group used some sort of ESG product or ratings in client portfolios last year, up from 41% in 2017.
  
  
• These advisors are following institutional investors, who are using ESG more frequently. A 2019 Callan Institute survey found that half of large ($20 billion in assets or more) institutional investors are incorporating ESG factors into investment decisions. And 51% of those institutions incorporating ESG consider ESG factors with every investment manager selection.
  
  
• While these statistics show wider adoption, many investors are still looking for guidance. A 2020 Wells Fargo study found that only 12% of individual investors have heard about ESG investing from a financial advisor.
  
  

As advisors look to meet their clients’ demand for ESG strategies, they will find a growing number of funds to choose from. We invite you to take a look at our latest paper, ESG Due Diligence: What to Ask, for some of the key items advisors should ask their client and their potential ESG manager, to find a strategy that matches their client’s specific goals and intentions.