Does your investment advisor understand your social values? – The Globe and Mail

Everyone has personal and family goals, and investors have priorities too. Canadians are increasingly aligning their investment decisions with preferred societal objectives, such as combating climate change, advancing human rights, alleviating poverty, protecting workers, or achieving sustainable operations.

These issues fall under the banner of ESG – environmental, social and governance. The rise in responsible investing (RI) is driving discussions between clients and their advisors around values and whether portfolio strategies are in sync with those expectations.

“Financial professionals should have a structured discovery conversation with every client, which includes questions on ESG investing,” says Krystian Urbanski, senior vice-president and associate portfolio manager with Forstrong Global Asset Management Inc., in Toronto.

That’s spelled out in guidance for Canadian financial advisors who are registered with the Investment Industry Regulatory Organization of Canada (IIROC). Their latest know-your-client guidance, which took effect Dec. 31, 2021, says investors should have the opportunity to express their needs and objectives “in terms that are meaningful to them,” which includes “investing in accordance with environmental, social and governance criteria or other personal preferences.”

The Responsible Investment Association (RIA) had been advocating for that for years, and it notes there has been a disconnect between investors and advisors around this topic.

An RIA survey found that 77 per cent of Canadian retail investors want their financial services provider to inform them about responsible investments that are aligned with their values, yet only 27 per cent had ever been asked about it. In a separate survey of Canadian financial advisors, only 37 per cent said they routinely initiated conversations about ESG and RI with their clients, although 85 per cent said they’re comfortable doing so. “The new guidelines will hopefully help kickstart these conversations,” said the RIA.

Those conversations can take many forms. Some Canadians are already quite knowledgeable about RI, some are simply curious, and others have never heard of the investment approach but might be interested if they knew more.

Mr. Urbanski says questions about financial goals will reveal what people are hoping to achieve in broad strokes. Open-ended questions about what matters to them should naturally lead to a discussion about their societal and personal values, he adds.

Brianne Gardner, a wealth manager and investment advisor with Velocity Investment Partners at Raymond James Ltd., in Vancouver, says advisors should start the conversation with one simple question: “What are your thoughts on investing more sustainably?”

The answer will either reveal an opportunity for education or, she says, “it will give you both a chance to dive deeper into the subject” and establish specific RI goals.

Finding the right investing approach

To set those investment objectives, advisors must probe which ESG criteria are most important to clients, Mr. Urbanski says. Some may want to use an exclusionary approach to investing, which would steer clear of certain holdings such as fossil fuels. Others might prefer an inclusionary approach, which would only make investments in areas such as renewable energy.

Prem MaIik, a financial advisor with Queensbury Securities Inc., in Toronto, says clients who are more experienced in RI might ask more targeted questions about how ESG performance is measured, or how to know if a company is transparent about its ESG practices.

Making sure clients are on the same page with each other is critical too. Mr. MaIik mentions a recent meeting with a couple where one spouse was adamant that their investments exclude oil, gas and tobacco, and the other had no concerns about factoring in ESG. It’s an opportunity to determine how to align family values.

One of the more important questions to discuss is whether investing with ESG practices will affect a portfolio’s performance. Does taking an RI approach mean accepting lower returns and growth? In the current environment of higher oil prices, a portfolio that excludes oil companies might be giving up potential profits. However, one report that examined the findings of 36 empirical studies on RI concluded socially responsible investing overall does not hurt returns.

People also want to know how they can participate in ESG investing. Once an investor’s goals and values are clear, advisors can review an individual company’s policies in detail, or they can recommend ETFs or mutual funds that offer access to a broad range of ESG-compliant companies.

“Although you don’t have an opportunity to choose each company, buying shares of an ESG ETF, for instance, can help clients invest according to their values more efficiently,” Mr. Urbanski says.

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