The Responsible Investment Association (RIA) presented its annual conference in Toronto this week, pulling together more than 300 retail and institutional investment professionals. The agenda was excellent and the event well-organized, but it made clear how far behind financial advisors are relative to their institutional colleagues.
If the advisors on-hand were any indication, there remains a pervasive view that the category represents an extension of their clients’ values. This was on full display during a series of advisor roundtables facilitated by researchers from Environics. The discussions were all about “making a difference” and “stewarding clients’ values.”
It was a completely different conversation on the other side of the hall, where the agenda featured Best Practices for Assessing Transition Plans and other similarly advanced presentations. While advisors talked about values, the institutional folks were discussing value.
“Sustainable investing really is just a part of how we invest the money that’s entrusted to us by the beneficiaries,” said Brian Minns, senior managing director, responsible investing at University Pension Plan (UPP). “We just view it as a great way of helping us have the best possible chance of achieving the investment returns that we need for the plan.”
UPP released its 2024 annual report this week. The fund delivered a 10.3% annual net rate return last year. Its net assets reached $12.8 billion, which puts its funding ratio at 102%.
In defence of advisors and retail clients, they’ve been pitched responsible investing in emotional terms from the start. And for a while there, it worked. There was “an explosion in ESG and sustainable investing” in 2020, driven by “a lot of inflows into the market and strategies which drove up demand for the stocks and expected future growth,” according to Tony Campos, head of sustainable investment, FTSE Russell.
He was at the event to talk about the FTSE Environmental Opportunities Index Series, which “measures the performance of global companies that have significant involvement in environmental business activities” according to the firm’s website.
The index’s performance has been volatile since, due partly to a lot of political noisemaking and a risk-on-and-off-again view among global investors.
His message to advisors? Ignore the noise.
“The long-term drivers are there around the need for more and more energy, and the need for that energy to be more and more efficient and less carbon intensive,” he said.
“What we’re focused on, in particular with the environmental opportunities indexes, is revenue from green products,” he said. “Is there demand for their products? Because the world needs to decarbonize.”
“Even if climate change weren’t an issue, there’s still going to be a desire to operate your business more efficiently,” he said.
Stop talking to your clients about doing the right thing. Employing ESG considerations to investment selection is good for the planet, but that’s not how to sell them. There will never be enough investors prepared to buy in on that basis.
Start explaining how poor environmental and other governance considerations make it more difficult for organizations to deliver sustainable long-term investment returns. Help them understand that bad actors are a bad bet.