Roadmap to ESG - Part three

It’s the third in our Roadmap to ESG series, compiled with the help of consultancy firm NextWealth, to help financial advisers prepare and implement a robust ESG approach. In this part, we focus on something businesses tend to struggle with - formulating a strategy.

From the discussions we’ve had with financial advice professionals for this series, it’s clear that most have found agreeing an ESG strategy extremely difficult and that it takes a very long time. Some have been working towards formulating a strategy for 18 months to two years and have still to commit the strategy to paper.

Why? Many blame the highly complex nature of ESG investing and the lack of robust data to inform decisions. The issue seems to be that many firms are looking at the subject matter and getting bogged down.

What can help is being clear about what a strategy is and what it isn’t.

Don’t confuse strategy and process

A strategy is a statement of what you want to achieve. It should inform the next step: the process. Mixing the two up can lead to wasted time and frustration.

As an example, let’s consider something we touched on in part two. Most firms are constantly asked to donate money to charitable causes, often by employees, friends and clients. Having a clear strategy for managing this, that is written down and shared with all stakeholders, can completely remove the headache of having to say ‘sorry but no’.

Here’s an example.

Philanthropy strategy

For the strategy, you may decide that your firm will donate money over 12-months to one chosen national charity and one chosen local one. That’s it – strategy sorted. Deciding this doesn’t take long and it makes it much easier to go to the next stage – formulating a process.

Philanthropy process

The process stage is likely to take longer but it will be easier to achieve because you have a clear focus. For instance, it may involve asking employees to nominate the national and local charity. This would be converted to a shortlist of three national and three local charities and clients asked to vote for the ones they would like to see the firm support. This works two-fold: it tells clients you are ‘giving something back’ and it also informs them that you are focused on specific charities so will not be able to donate to others.

ESG investing strategy process

In a similar way to above, separating the ESG investing strategy from the process should result in a much more efficient and rewarding result.

Figuring out the best ESG strategy for your business

Perhaps one way of considering what the best ESG strategy is for your business is to break it down into options.

Here are three (rather simplistic) examples of how you might think about your strategy:

Example option 1

Perhaps you are passionate about ESG considerations and the firm is active in doing all it can to be sustainable, socially responsible and focused on making a positive impact. You may decide that your ESG investing strategy should be designed to fully embrace ESG across all the investment options you offer. You may want to educate clients about the good their investments can do and help them to invest in ways that will make a positive impact.

Example option 2

As a firm you may feel that it is your primary duty to serve clients by getting them the best return for their investment, regardless of ESG considerations. However, as part of your standard service, you may want to offer clients options to invest in ESG-specific funds or portfolios, guided by their attitude to making their investments an active force for good.

Example option 3

You may decide that your firm is wholly focused on getting clients the very best return for their investments, regardless of where those investments are made. You may decide that clients who express a desire for ESG investing are offered a ‘premium’ service that is tailored to them and, as such, requires a higher level of research and monitoring.

We would like ESG to be part of our core offering. I don’t like the idea of having ‘good’ or ‘bad’ portfolios – that doesn’t fit in with our values.”

Adrian Murphy,
Murphy Wealth

Strategy first, process second

Working out what overall strategy you want to take as a firm should not take long to agree. However, it’s important that the whole firm buys into the strategy and is clear about what it means in terms of process and outcomes.

Having a strategy is essential to move to the next step: the process. This is likely to take more time but the fact that the strategy has been defined should cut down on wasted research and remove some of the frustration of trying to decide what to do for the best.

Roadmap to ESG part 4: Investment options

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