How to improve responsible investing conversations with clients

Avoiding politics and asking investors about their volunteer work and preferred charities are some ways advisors can have effective conversations about responsible investing.

A client’s charitable contributions are “a fantastic giveaway” about their values, said Alicja Brown, investment advisor with Edmonton-based Brown Investment Group of CIBC Wood Gundy.

Tim Nash, founder of Toronto-based Good Investing, has a similar approach. When talking about responsible investment and ESG issues, the client’s charitable contributions can give an advisor a good sense of the client’s “red flags” and “green flags,” Nash said.

Brown and Nash spoke on a panel at the Responsible Investment Association’s (RIA) 2023 conference in Toronto on Tuesday.

Advisors can ask clients whether they want to avoid any sectors or companies entirely, but they should also find out what makes them excited. For example, Nash asks whether his clients volunteer for any organizations to determine their social responsibility focus areas.

Nash, a fee-only financial planner who specializes in sustainable investing, has a wide variety of clients. At one end of the spectrum are investors who want to take a “small step in the right direction” and avoid issuers with the worst records — what he calls the clients who want to “do less evil.”

At the other end are his “crunchy granola clients” who have strong views on how they want to invest and usually want to “do more good.”

In the former case, “I have a huge long list of ‘doing less evil’ funds and I am trying to narrow it down for them by understanding their deal breakers,” Nash said. “It is about making sure that there is nothing inside that fund that is going to make my client gag.”

By contrast, most of Brown’s clients do not ask her about ESG. She instead works to learn about their values so she can customize a portfolio — and does so in as politically neutral a way as possible.

“I really work hard on not using political dog whistles,” Brown said. For example, she avoids using “tar sands” as a pejorative for the Alberta oilsands.

“’Environmentalist’ for some reason is a really polarizing word so I try not to use it,” Brown added. Instead, she talks about the “majesty of the Rocky Mountains.”

When discussing potential investments, Nash warns that some ESG strategies can result in less diversification or higher fees.

“I spend a lot of my time talking people out of putting all of their money into green [thematic] funds. They are not diversified enough,” Nash said.

Instead, he illustrates the need for diversification by comparing portfolios to pies. Bonds form the crust, stocks form the filling, thematic funds form the cream and impact investments — funds that invest in companies or projects that intend to have a measurable positive environmental and/or social impact — form the cherry on top.

Panellist Deborah Debas, senior responsible investment specialist with Desjardins Wealth Management, agreed that advisors need to tell clients what tradeoffs they make when they avoid entire sectors, such as mining or fossil fuels.

“You can’t exclude everything, because at some point it’s not going to be good for your client,” Debas said.

Advisor.ca and sister publication Investment Executive were media sponsors of the RIA Conference.