While the story of COVID-19’s aftermath on our financial markets has yet to be written, one lesson around which traditional finance is starting to coalesce is that COVID-19 has highlighted the need for greater investment in climate solutions right now.
Like COVID-19, the costs of prevention are much cheaper than procrastination. What’s more, it’s quickly proving the investment case for impact investing to traditional investors — not just cutting-edge impact investors — like never before. As has been widely reported in recent weeks sustainable investing has thus far outperformed traditional markets during this crisis.
In other words, impact investing is no longer a nice-to-have. Here are three reasons why financial advisors and RIAs who have been slow to get on the impact investing train need to get on board or be left behind.
1. Getting smart now on sustainable investing options is simply good business.
There is a growing chorus among commentators and asset managers alike that COVID-19 may have been the catalyst sustainable investing needed to go mainstream. For good reason. According to Morningstar, sustainable investments (those incorporating environmental stewardship, high labor standards, and governance best practices) outperformed traditional investments during the first quarter of 2020, falling 18.5% based on the Sustainable Index Fund average, compared to a decrease of 19.6% for the conventional benchmark, based on the iShares Core S&P 500 ETF.
Even prior to COVID-19, investors wanted to know more about their sustainable investing options. According to the Morgan Stanley Institute for Sustainable Investing, 75% of individual investors, 84% of women and 86% of millennials are interested in sustainable investing, along with 77% of institutions saying they have a responsibility to address sustainability issues through their investments. With the relative strength of sustainable investments to withstand the COVID-19 crisis, even more clients are going to want to talk to you about it and understand how they can redirect some of their investments.
So if you haven’t been paying attention to sustainable investing before, trust me, your clients are. So you need to.
2. Starting the conversation is easier than you think.
Questions from clients who turn to you for guidance about sustainable investing give you an opportunity to deepen your connection with them and advance your advisory relationships to a new level.