3 things you should be doing to attract ESG investors
ESG (environmental, social, and governance) investors are becoming more popular as millennials enter the workforce. Around 60% of ESG-focused funds show growth in assets under management over the past year. But what can companies do to attract more ESG money? This article will look at three things to consider when working with ESG investors to attract sustainable investment dollars.
1) Allocation matters
An ESG-friendly portfolio is an integral part of a sustainable investment strategy, but it’s just as crucial for investors that manage other people’s money (OPM). These days, many clients expect their financial advisors to invest sustainably and request environmental, social, and governance (ESG) information when reviewing or choosing an advisor. Advisers need to demonstrate how they manage sustainability in their portfolios to earn new business from clients seeking out these investments. And for those who don’t offer such solutions today, it will likely become increasingly necessary to compete and keep up with shifting investor preferences over time. In either case, OPM advisers need to do two things: identify relevant ESG factors within their client’s portfolios and then make informed investment decisions in line with client expectations.
2) Education is important
When searching for potential investments, Environmental, Social, and Governance (ESG) investors perform a thorough due diligence process. While your business might not be eligible for an asset from a fund, these types of investors can still help by providing feedback and advice. Remember, there is no shame in being honest about how much work your business needs. The more willing you are to self-critique, the easier it will be for others to trust that you’re working towards those changes. It’s important to remain honest about yourself and realistic about your goals. Remember that potential investors want to see transparency and honesty.
3) Be transparent
A growing number of institutional investors are pressuring organizations they invest in to disclose more about their environmental, social, and governance (ESG) performance. They’re asking companies many questions – some that might even seem uncomfortable at first. The purpose of these questions is transparency and improving performance, though it can feel like an interrogation at times. Transparency doesn’t come easily, but there are three things organizations can do to make sure they’re ready for such conversations with ESG-minded investors. First, have all your numbers together. This means having clear information on everything from greenhouse gas emissions levels to community involvement efforts available when you sit down with ESG investors. It takes work to get those numbers put together, but it’s worth it. Second, build relationships. One of the most important parts of successfully navigating any conversation is knowing your partners inside and out. Take time to research each ESG investor beforehand to know what kinds of topics they want to be addressed and how they usually approach them. Also, take care not to assume things based on past experiences with other investors or one-off interactions. Every organization and every investor will be different. Third, keep records of your progress. Keeping track of your progress sends a clear message to ESG investors that you’re committed to being transparent in both action and communication with them going forward. Although it may sound tedious, documented progress shows that you’re serious about maintaining transparency in your ESG practices and giving your investors peace of mind.
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