Are advisers obligated to recommend sustainable investments? June 2020

Alexandra+brown

Invest with Ethics founder Alexandra Brown believes that financial advisers are under and obligation to include considerations about sustainability when discussing investing with their clients. She recently hosted a webinar with the FPA to discuss the role advisers can plan in ESG investing as well as adviser responsibilities.

Do you think financial advisers are under an obligation to consider recommending sustainable investments?

I do. I believe that we all have a role in creating a sustainable environment, society and economy, but the finance industry is particularly important in achieving this. For instance, we are falling short of reaching the Sustainable Development Goals and urgently need to mobilise capital to meet the targets. Institutional investors are often seen as the stewards responsible for this, but I believe that financial advisers are an integral part of the investment chain and have a stewardship role too. Advisers are the link between clients and what their money is being used for, directly to companies or indirectly through institutions.

Collectively, advisers hold a lot of influence for a sustainable future through the purposeful allocation of capital. I also think that a sustainable future is in a client’s best interests, especially as advisers need to consider the long-term consequences of their advice.

For advisers who are passionate about ESG issues, how do they broach the idea of ESG investing with clients?

It can start with simple conversations around small things to gauge what a client cares about, such as recycling or even using a keep-cup. This can develop into chats about bigger things that matter such as products or industries a client wants to avoid, perhaps how a client feels about tobacco, gambling, or fossil fuels. Ideally though, a client’s ESG concerns would be part of the fact find process.

An adviser can use a document that lists common ESG issues and discuss each one with the client to create an ethical profile. Conversations can focus on whether the client wants to support, avoid, or consider further each issue. This does rely on the adviser being able to confidently discuss the issues but can really help build deeper connections and stronger relationships with clients, especially if there are shared values in the mix.

What were the responses like from the FPA and its members to your webinar about sustainability?

I was pleasantly surprised. In fact, I asked a couple of questions in a poll and I’m pretty sure I gasped audibly at the results.

The first question was, ‘Do financial advisers have a stewardship role in financial decision-making?’. I asked this after connecting the FASEA Code of Ethics best interests duty with long-term sustainability; the fact that Australia’s regulators are updating their guidance to include climate risk and other sustainability issues; and evidence of the growing demand for responsible and ethical investment options in advice. The poll result was surprising, with 90% choosing yes, advisers do have a stewardship role.

The second question asked, ‘Is it in your client's best interests to incorporate sustainability in advice?’. The result was 87% for yes. I could not believe it. I’m seeing and feeling a dramatic shift in adviser sentiment towards sustainability in advice, and I love it.

Impact investing is growing in popularity. How do you balance the need to provide for a person’s future with the need to do good in the world?

Impact investing is a specific area of responsible investment that focuses on an intentional and measurable positive social or environmental impact. Achieving market returns is not always a priority for true impact investments. However, there are plenty of ethical and responsible options that do aim for competitive financial returns alongside positive outcomes. The question implies that there is a trade-off between a financial or sustainable future, that a client can have one or the other, but they can be one and the same.

There’s plenty of research that busts the performance myth, showing that overall there is no significant difference in returns between responsible and traditional investments. Using money to do good for people and planet does not necessarily mean sacrificing returns. In fact, there may even be a long-term bias regarding ESG leaders, meaning that responsible investments may perform better over the long-term.

You started your career in a very different place than you are now. What inspired you to move away from the restaurant business and into finance?

Good question. I was a successful, award-winning chef before my move to finance. Even though I loved the fast-paced, exhilarating life as head chef of top restaurants and hotels, it was demanding and not something that I could do forever. I decided to leave a decade-long chef career, originally because I wanted to learn how to invest, more specifically, how to build a highly successful portfolio.

I enrolled in finance and business at university because I’ve always been entrepreneurial and wanted my own business in finance. The problem was that I struggled to find an area of finance that aligned with my values, so I kept enrolling in further study, until I finally discovered ethical investing.

I stayed in academia for a decade, the last four years of which were spent researching ESG. From there, I was fortunate to join a financial planning firm that specialises in responsible investments, and this led to becoming a member and on the board of the Ethical Advisers’ Co-op, where I’ve had the privilege of supporting advisers who have been at the forefront of ethical investing in Australia.

You’re holding several roles in ESG and ethical investing right now, at Altiorem, Accord, and Invest with Ethics. What interests you about ESG?

A little-known secret is that prior to being a chef, I studied two-thirds of a natural resources management degree, specialising in habitat rehabilitation. If, for example, a mining company damaged an area of land, I wanted to go in and repopulate it with the native fauna and flora. I’ve always been driven by conservation and a need to protect the environment.

Fast forward to now, and instead of protecting or rehabilitating a small area, I’m advocating for change in entire industries. I feel like I’ve come full-circle, and ESG and ethical investing provide the opportunity for even greater positive impact. The multiple roles I hold are rewarding and fit together well. For example, Altiorem lets me learn about the best ESG research and share ideas with amazing leaders in sustainability and finance. Accord helps me understand best practice for ethical investing in financial advice and I also provide fund research which keeps me on top of ethical investing products. And of course, there is my own business, Invest with Ethics.

What started as a small dream ten years ago when I left a successful career and jumped feet-first into finance, has evolved into an exciting consulting business. It’s currently going through another transformation, with a course that guides advisers smoothly into the ethical advice space launching soon. Without a doubt, ESG and ethical investing are moving from niche to norm in financial advice.

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