Financial advisors increasingly are being drawn into environmental, social and governance (ESG) discussions with their clients. Individuals are becoming more interested in how they can help make an impact in areas important to them through their investment decisions. Many also are coming to see that ESG factors may have both short-term and long-term impacts on their portfolios. And they want input and direction about these factors from financial advice professionals.
However, many advisors find discussing ESG investing with clients to be a challenge. Some advisors feel that ESG is too broad an area in which to develop expertise, some view it as a niche market and others believe the issue has political overtones they would rather not touch.
For advisors who want to help meet investor needs but thus far have been reluctant to devote much bandwidth to ESG, we have what may be an unusual suggestion: Don’t approach it as ESG, approach it as E, S or G.
To make advisor-client conversations about environmental impact (the “E”) more impactful, Calvert has developed an Impact Tool, which allows anyone to compare the impact of companies in several Calvert funds to companies in those funds’ benchmark indexes. For example, investors can see that companies in the Calvert US Large-Cap Core Responsible Index Fund had 46% lower carbon emissions than the holdings in the Russell 1000 Index, which is equal to the annual carbon emissions of 33,265,309 daily commutes for the average driver or the annual carbon emissions of 87,169 cars. The tool also measures landfill waste, tobacco exposure, toxic emissions and water usage, and is available on Calvert’s website.
Investment professionals who want to take a deeper look, have another tool that's exclusively for them the Calvert Transparency Tool, powered by Morningstar. Also available on Calvert.com, this tool enables investment professionals to evaluate products across a comprehensive set of traditional portfolio characteristics and ESG key performance indicators. It provides a side-by-side view of how selected funds compare on a wide array of ESG, fundamental and risk metrics, as well as proxy-voting measures.
The “S” in ESG assesses a company's strengths and weaknesses in issues related to people, from its workforce to its supply chain to its customers. It covers issues like diversity and gender equity, Indigenous Peoples’ rights, product safety and data security. However, if you are passionate about issues or interests in these areas and you have like-minded clients, you are likely to find that your shared interests create a stronger client bond. Those clients would probably welcome an opportunity to discuss investments that consider issues they prioritize.
Governance — centering on board composition, executive compensation, corporate disclosure and company policies — ultimately also has an impact on corporate performance and share prices. And that “G” issue is one most advisors are quite passionate about.
Financial advisors with clients who share their passion for investing are likely to enjoy learning about and discussing how companies have changed governance procedures to be more shareholder friendly, improve oversight and reduce risk. As a large investor, Calvert takes seriously its responsibility for actively engaging with companies to improve financially-material ESG areas, including governance, as well as other aspects of their operations.
Focusing on the specific E, S or G elements most relevant to advisor or client interests may allow advisors to learn more about a specific aspect of ESG investing and perhaps develop closer client relationships – and also come to learn what may be the key takeaway from ESG investing overall. That key insight is that ESG analysis doesn’t replace traditional investment analysis, it supplements it. Combining the two reduces investor risk and enhances the opportunity for returns. And what advisor isn’t passionate about that?
Risk Considerations Investing involves risk including the risk of loss. There is no guarantee that any investment strategy, including those with an ESG focus, will work under all market conditions. Investors should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. Past performance is no guarantee of future results.
The views and opinions are those of the author as of the date of publication and are subject to change at any time due to market or economic conditions and may not necessarily come to pass. The views expressed do not reflect the opinions of all investment personnel at Morgan Stanley Investment Management (MSIM) and its subsidiaries and affiliates (collectively the Firm”) or the views of the firm as a whole, and may not be reflected in all the strategies and products that the Firm offers.
This material is a general communication, which is not impartial, is for informational and educational purposes only, not a recommendation. Information does not address financial objectives, situation or specific needs of individual investors.
Calvert is part of Morgan Stanley Investment Management. Morgan Stanley Investment Management is the asset management division of Morgan Stanley.
Please consider the investment objectives, risks, charges and expenses of the funds carefully before investing. The prospectuses contain this and other information about the funds. To obtain a prospectus for the Calvert Funds please download one at https://funds.eatonvance.com/open-end-mutual-fund-documents.php or contact your financial professional. Please read the prospectus carefully before investing.
NOT FDIC INSURED | OFFER NO BANK GUARANTEE | MAY LOSE VALUE | NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY | NOT A DEPOSIT
Eaton Vance Distributors, Inc. (“EVD”), serves as the distributor for Calvert Funds.
© 2022 Morgan Stanley. All rights reserved.
IRAs now hold nearly twice the assets of 401(k) plans — and most of that money didn't arrive through annual contributions.
A new survey finds that many women prioritize financial security but continue to leave savings in accounts that may not keep pace with inflation.
Roundhill, Bitwise and GraniteShares funds remain on hold while the agency weighs how novel ETFs should be regulated.
"Shares of alternative assets managers have lagged this year as investors grow wary of private-credit exposure."
The fintech platform is touting a new AI-free Planning Observations feature, which draws on IRS tax records to uncover opportunities for advisors.
Dan Biagini of American Equity says the steady decline of pensions, longer lifespans and a reset in interest rates are rewriting how advisors build retirement income
Direct indexing is on pace to outgrow ETFs and mutual funds. Northern Trust's Ken Lassner explains why the advisors who get it wish they had started sooner.
