Opportunity Knocks:

How advisers can capitalize on growing ESG interest

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Opportunity knocks:

How advisers can capitalize on growing ESG interest

By IN Research and Calvert — July 15, 2019

The following is an excerpt from a new white paper, “Opportunity Knocks: How advisers can capitalize on growing ESG interest” co-developed by InvestmentNews and Calvert Research and Management. This new research paper offers data and insights to help advisers harness the ESG opportunity. Among other topics, the research explores investor intentions and motivations around ESG investing, and competitive analysis of the degree to which advisory firms are pivoting their business toward ESG investors.

How important are social and environmental issues to your typical client?

Advisers can no longer afford to view ESG as a fad for younger investors. Value-based investing is now entrenched across demographic segments. A sign of its ubiquity, more Gen X investors now express a high level of interest in implementing ESG strategies than millennials.

ESG values are also prevalent across the wealth spectrum. Wealthier client segments tend to have a stronger desire to implement ESG investing strategies than other client segments.

However, among the mass affluent, high-net-worth and very high-net-worth segments, at least half of investors express a moderate or stronger desire for ESG implementation.

The ESG trend isn't likely to go away either. Only 4% of investors said their interest in ESG investing declined over the past year, while 45% said interest increased.

While interest is picking up, a gender gap still exists. Sixty percent of female investors expressed at least moderate interest in ESG implementation, compared to 48% of men.

Advisers are experiencing the increased appetite for values-based investing firsthand, with ESG values influencing a growing portion of their current book of business. Eighty-four percent of advisers say ESG issues are important to their typical client, up from 73% in 2017. The percentage of clients carving out ESG allocations within their portfolio is also on the rise. By 2022, advisers expect more than a third of clients to direct some of their investments toward ESG strategies. The average allocation could comprise more than 40% of the client's portfolio by then, advisers project.

Even though advisers are experiencing rising client demand, they may be underestimating the opportunity set. As the chart below shows, older generations have a much higher interest in ESG than most advisers believe. Advisers are also miscalculating the interest among wealth groups, particularly high-net-worth and ultra-high-net worth investors.

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