Betterworld Financial Planning starting trading on 1 May 2021. Our investment proposition is based on sourcing and advising on investment solutions that meet responsible, positive-impact-driven, sustainable and environmental criteria, along with a focus on good governance.
I believe that companies that contribute to sustainability, environmental care, good social outcomes and have good governance will perform better over the long term than companies that do not.
The new business has all been invested into Environmental, Sustainable and Governance (ESG) focused / Socially responsible investment (SRI) model portfolios managed by a range of fund managers including EQ Investors, Blackfinch Asset Management, and Kings and Shaxon Ethical Investing.
It’s my ambition to gradually and where appropriate rebalance clients’ portfolios in similar strategies in the coming months. New clients will always be recommended solutions which meet some ESG standards.
Selling ESG to a client
If I’m talking to brand new client it’s very easy to say, why wouldn’t you invest in this way? Because as soon as you can demonstrate that cost, performance and risk are still competitive, and that we can wrap all that up in a responsible outcome, then it’s win-win.
I’m also keen to explain to clients that ESG funds aren’t necessarily focused on ‘far-out’ companies - these are mainstream companies that we’ve all heard of, for example, National Express. Being able to tell that story makes the whole process very engaging.
However, there is a potential issue with existing clients. I have 30 existing clients whose portfolios I’m now moving into ESG funds, which could beg the question “What was wrong with the last one?” You can’t say “That portfolio we put in is no good anymore.”
But you can say “That portfolio still mees your objectives and achieves your targets, but it hadn’t until now been screened against ESG criteria. Whereas this one has.”
Reassurance on performance
The question that comes up most from clients is: “Will I suffer in anyway?” For this I use FE Analytics portfolio planning tool, which allows me to compare the client’s existing portfolio against my ESG recommendations. I can also add in charges and using their MPS feed I’m able to map the portfolios to the client’s risk and objectives.
As soon as clients can see they’re not losing anything on performance, that’s the clincher.
How we assess clients' ESG needs
I’ll always start off when recommending a new investment with the assumption that a solution that meets some ESG criteria will be better than those which do not.
I try to explain that even if a client has no particular interest in this field the solution recommended will cost no more, carry no more risk, and perform at least as well if not better than a conventional portfolio.
To encourage clients to think in this direction I have included a questionnaire in our fact find which asks questions regarding avoidance of areas such as animal testing for cosmetic purposes, pornography, fossil fuels etc; impact questions such as energy use, equality and diversity, human rights etc; and thematic style questions including healthcare, sustainable agriculture etc. I mentioned a few of them here.
I use Cashcalc for client on boarding as well as cashflow planning and it is possible to add additional sections to their factfind. So far I have discovered that most people do care about at least some of these issues and that is a way to further the conversation. The added advantage of Cashcalc is that it can be completed online.
The MPS providers we currently have terms of business with are EBI Earth Portfolios, EQ Investors, TAM Asset Management, Psigma Investment Management, Blackfinch Asset Management, and King & Shaxson Ethical Investing.
These providers all have a demonstrable track record in ESG and SRI investment and several can run bespoke portfolios which enables a more precise reflection of ESG objectives.
I have been able to talk with the head of ethical/SRI/ESG investments in each of these and have been impressed at how willing they are to engage with a relatively small and new planning business.
This, coupled with the usual due diligence you would expect, really means I can get to understand the motivation behind the portfolios. In the absence of clear definitions, and given that ESG investing is still relatively new, I find it really interesting to hear their differing views.