Five topics to start the ESG conversation at your annual reviews – from heatwaves to the McPlant
We have heard it a thousand times; ESG investing, and I use that term to describe any investment with Ethical, Social or Governance considerations, is on the rise and advisers have be speaking to clients about it at their annual reviews.
Many clients may not appreciate the potential impact their pensions and investments can have on their personal carbon footprint and how companies choose to conduct business. A study commissioned by Aviva in partnership with Route2 and Make My Money Matter in 2021 concluded that ‘moving the national average pension wealth to the sustainable fund used in the calculation is 21 times more effective (respectively) than the combined annual savings of switching to a renewable electricity provider, substituting all air travel with rail travel and adopting a vegetarian diet’.
But how best to approach this conversation without simply asking the client ‘are you interested in ESG investment’? Below are five ideas to get the conversation started:
1) Russia’s invasion of Ukraine
The mass exodus of companies from Russia and the economic sanctions put in place on the country provide a real-life example of how investing and financial markets can be used in ways other than just generating returns. An investor has the power to ‘vote with their wallet’ and pressure companies to avoid investment in certain industries or countries and the current conflict is a useful real-world example that can be used to help explain this.
2) The cost-of-living crisis
This is another big topic which is bound to come up in any client annual review. What are your clients’ thoughts on rising energy and food bills for the consumer and record energy company profits being reported? Are they aware that their own pensions and investments could be part of the reason the big companies are so keen to retain profits? How strongly do they feel about this issue and are they prepared to make any changes to their investments to send a message?
3) This summer’s heatwave
Discussing the weather is a staple of any annual review meeting, which can lead on nicely to discussing the ‘E’ in ESG, i.e., the environment and the climate emergency. Are your clients becoming concerned about increasing occurrence of extreme weather events globally and are they concerned about what their children and grandchildren’s lives will be like. If so, making changes to their investment could potentially be one effective way to take action and reduce their carbon footprint. When compared, one study found there to be a greenhouse gas ‘saving’ of 0.64kg per £1 investment in a sustainable pension fund compared to investment in a broad global equity index fund1.
4) Insulate Britain protests
Have any of your clients’ plans been disrupted by one of the many Insulate Britain or XR protests that have taken place over the past couple of years? Are clients in agreement with the groups actions or are they sympathetic to their aims but disagree with their way of going about things? Either answer could provide the basis for a detailed discussion surrounding ESG investment, with a change of investment strategy potentially providing a fairly passive but effective way of helping to reduce an individual’s carbon footprint.
5) The McPlant burger
This is one a bit more light-hearted but is perhaps one of the most effective ways to get the ESG conversation started. Has the client been making any small changes to their lifestyles or habits with the aim of being a bit more ‘responsible’ in their consumption; this may be trying the McPlant burger and eating less meat, switching to an electric car, changing to a renewable energy tariff or boycotting Russian vodka. If so a discussion regarding the features, benefits and drawbacks of ESG investing may be well received.
In summary, the ESG conversation should be able to naturally fit into a normal annual review meeting conversation and it is up to the adviser to link what may previously have been unrelated comments back to the types of holdings underlying a clients’ portfolio.
Many clients will still favour growth over any other considerations, but many others will be interested to hear how their investments can be used to help inform companies and governments of their views and a natural conversation is sure to be the way to determine this either way.
The approach to take to ESG is the same as risk profiling – it isn’t binary, it is a scale.
It is less about ‘do you have an interest in ESG?’ and more about ‘how deep is our interest in ESG?’.