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Navigating ESG Investing Conversations: 3 Takeaways For Advisors
The way financial advisors talk about ESG may need to change.
Key Takeaways
Our results indicate that the industry's preferred terms—such as “ESG investing”—aren’t widely used. Instead, investors talk more directly about the concerns they have related to ESG topics.
The topic of ESG doesn’t dominate discussions in which it is mentioned. For many investors, ESG is part of the conversation but not the primary focus of the conversation itself.
Most posts express a neutral sentiment toward ESG, signaling that the polarity depicted in the media is overblown.
ESG continues to play an important role in an investor’s financial plan. Yet, advisors may feel hesitant broaching the complex topic with clients. So how can you navigate ESG investing conversations with confidence?
First, it’s important to meet investors where they are. Our researchers conducted a social-media analysis of Reddit conversations to grasp investor discussions and sentiments toward ESG. These findings can provide you with a practical approach to discussing ESG investing—all while helping clients reach their financial goals.
To read the full research report, download a copy.
How Are People Talking About ESG Investing?
Over recent years, ESG has gained enthusiastic support from both investors and institutional giants. In fact, one can argue that the inclusion of ESG considerations in investment decisions may even have a positive impact on investors and the investor-advisor relationship.
To discover how people are talking about ESG investing, we extracted the most dominant two-word phrases in our dataset. These top phrases include "climate change" and "fossil fuel.” Our results indicate that the industry's preferred terms—such as “sustainable investing” or “ESG investing”—weren't widely adopted.
Furthermore, the most common terms show that individuals are primarily concerned with the environmental aspect of ESG, whether that be for impact or investment risk reasons.
Morningstar researchers find that the top three ESG phrases are “climate change,” “fossil fuel,” and “renewable energy.”
Key Takeaways For Advisors
Online conversations have the power to provide valuable insights into how investors are thinking about certain topics. In other words, social media gives us a chance to listen in on organic conversations and discover real investor perceptions.
Based on our analysis, here’s what advisors need to consider when discussing ESG investing with clients.
“ESG investing” isn’t really a thing
As mentioned, we don’t find that the term “ESG” is commonly used in Reddit posts. Instead, investors talk about the concerns they have related to ESG topics (such as climate change) when thinking about investment options.
This discovery implies that “ESG” and its correlates are financial industry jargon to most people. To have productive conversations, use language that clients already understand. One way to do this is by asking clients about the causes they care about—and using the terms the client provides as the common ground for conversation.
ESG isn’t usually the main focus
For many investors, ESG is a part of the conversation and not the primary focus of the conversation itself. This highlights a need to focus discussions on the components of ESG that matter to each client instead of broad terms like “ESG,” which may hold little meaning.
Investors’ goals should remain focal to the financial planning process with values-based investing incorporated to serve those goals. When discussing values with your clients, there may be a place where ESG investing naturally fits in service to those values—which then allows ESG to be part of the conversation.
ESG isn’t as polarizing as believed
Despite the popular narrative that ESG incites either fanatical support or intense aversion in investors, our findings don’t support those expectations. Instead, investors tend to demonstrate a neutral stance on the topic.
In general, advisors shouldn’t feel overly skittish about approaching ESG investing topics as most clients won’t have strong feelings either way. In fact, prompting clients to talk about their goals and issues they care about may engage them further in the financial planning process.
Deepen Conversations With Clients
While ESG continues to be a key part of investing, the way advisors talk about the topic may need to change. By knowing how to approach ESG conversations and ask engaging questions, you can personalize clients’ plans and help them reach their unique goals.
Deliver quality advice with Morningstar Direct. The comprehensive platform offers access to a full ESG dashboard—allowing you to build portfolios and propose investments that line up with client values.