[Investments & Wealth Institute] Environmental, Social, and Governance Investing: Myths versus Reality

A reprinted article from March/April 2020
By Margaret M. Towle, PhD, CIMA®, CPWA®

The term “ESG” (environmental, social, and governance) was first used in a 2005 study entitled “Who Cares Wins.” In the decade and half since then, ESG investing has had a profound influence on asset managers that focus primarily on the institutional marketplace. Yet most wealth managers and financial advisors have been reluctant to fully incorporate ESG factors within their investment processes. For example, a recent financial industry publication references two studies that quantify the low adoption rate of ESG investment strategies among U.S.-based financial advisors.2 It notes the results of a 2018 survey of financial advisors in which only 36 percent of those surveyed offered ESG investment options to their clients.

Why should wealth managers care about ESG investing? One important reason is that sustainable investing is growing rapidly.3 Thus, those that embrace it early in the cycle can hold a competitive advantage over those that fail to do so. To help financial advisors better understand the benefits of ESG investing, this article demystifies ESG investing by exploring four common misperceptionsmany financial advisors hold regarding ESG investing.4