The ESG outlook for investors and advisors
With ESG assets on track to exceed $53 trillion by 2025, according to Bloomberg analysis, it’s safe to say that ESG is no longer a niche. In terms of retail demand, $1.65 trillion in sustainable assets were held by U.S. mutual fund and ETF assets as of year-end 2020 – 67% more than the total at year-end 2019, according to Morningstar.
But according to FPA’s 2022 Trends in Investing survey, only 34% of advisors use or recommend ESG strategies to their clients, a percentage that’s actually down from 2020’s report of 38%.
Advisors’ unwillingness to adapt to this macro-shift in investing could create a potential disconnect from the next generation of investors, who are set to inherit more than $68 trillion in wealth from their boomer parents during the next decade, according to consumer researcher J.D. Power’s 2021 Full-Service Investor Satisfaction Study.
Using a rebalancing platform to compete in today’s ESG world
To capitalize on the clear ESG opportunity, advisors may turn to their portfolio models and investment management platforms to help drive a disciplined approach and make rebalancing and trading simpler and more efficient.
Start with a client’s investment policy statement (IPS), risk profiles and preferences to decide on the portfolio model structure and asset allocations they most desire. A robust rebalancing tech platform offers model management capabilities that make applying security restrictions and ESG preferences considerably faster and easier.
For example, our RedBlack technology solution allows for the creation and customization of ESG sleeves or sleeve sets in multi-tier models, providing the option to invest with ESG consideration within the 60/40 model. Our node rebalancing represents different levels of multi-tier models, so advisors can rebalance different layers or variations of models at once, and target any combination of nodes within a multi-tier model to rebalance that portion of the portfolio via actions and parameters.
A disciplined ESG model approach
Values-based investing is experiencing a paradigm shift as interest in ESG investing expands farther than the original social responsibility premise of endowments and foundations. And it requires a sophisticated, disciplined approach from ESG-aware wealth managers and financial advisors. By integrating customized ESG themes into models using an advanced rebalancing and trading platform, advisors can shift seamlessly to fully satisfy their clients’ ESG preferences and requirements, and prove their value across generations of investors.