Not too long ago, the positive news surrounding sustainable investing seemed as if it would never end. Unfortunately, that stream of praise proved to be, well, unsustainable, as evidenced by the recent backlash against it.
Kiley Miller, principal director of sustainable investing at Envestnet, expects the hostility to the ESG-based investing strategy will ultimately be fleeting as well.
“ESG has definitely become a politicized, polarizing term, and I think some of the backlash that we've seen has merit,” said Miller. “That said, like any new kind of concept, there's an arc to innovation and there's a maturing of a new concept. And while some of the criticism is healthy and understandable, some of it has been a little bit unhinged from reality.”
A large part of the problem, Miller said, has been the conflation of ESG with DEI or effective altruism. As a result of this less than careful mixing of terms, she expects advisors and investors to become more precise about how they explain their investment approaches going forward, especially when it comes to the sustainability component of that approach.
“Ultimately it’s a good thing for the industry, and a maturing of the industry, to allow investors to be more accurate and precise with what they're actually doing,” she said. “So it's a natural progression.”
When it comes to how advisors can effectively utilize sustainable investing strategies in their practices, Miller believes that “every investment has an impact,” and understanding that fact will help advisors make deeper connections with their clients over the long term.
“At the end of the day, you're supporting something no matter what, and so better understanding where your dollars are being allocated is positive,” she said. “Looking at the financial plan and reflecting those interests throughout the financial plan, across the portfolio reporting, for example, voting on the investments within your portfolio and, as well as philanthropic planning, charitable giving.”
Despite all the back and forth over ESG, Miller says investors have indeed learned that they can "do well by doing good." She says the first step is for investors to understand exactly what they own and how much of it they own.
After that, Miller says it’s a matter of “reimagining their relationship with their wealth and what it could look like,” and then setting goals and parameters to decide whether to make some adjustments to the portfolio.
When it comes to the future of ESG investing, Miller expects to see increased investor interest in areas including energy transition, smart mobility, natural capital, and biodiversity.
“I also think artificial intelligence is going to advance some of that as well, particularly in climate technology and in better predicting severe weather patterns, so that we can better understand our agricultural output and better predict the physical impacts of climate change,” she said.
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