5 Steps to Simpler Sustainable Investing

by Rebecca Kowalski, Overstory Finance





Firstly, let me clarify what I mean by “sustainable investing”, which may or may not be the same thing that you call ESG. In the context of this article, sustainable investing is an umbrella term that covers all of the styles of investment – ethical, responsible, sustainable, impact, thematic, ESG – that in different ways factor in either environmental, social, moral or good business practice considerations when selecting the companies that do or don’t, they invest in. Many people in finance use the term ESG in the same way. That’s not my sustainable investment preference however and the FCA says we need to take that into account!


Surveys and discussions reveal that there are multiple reasons why advisers are cautious, sceptical or nervous about offering a sustainable investment proposition to their clients. Some of the most common reasons are:


  • Distrust and fear of greenwash – how to test investment managers’ claims about their funds and portfolios.

  • Confusion – how to compare different investment solutions, as this tends not to be an “apples with apples” comparison.

  • Lack of knowledge - both of the workings of the sustainable investment sector and the underlying themes, such as climate change.

  • Discomfort – how to perform well in client discussions about sustainable investment, when you may neither an expert or an advocate be.


To deliver a sustainable investment proposition successfully, you need the following:




Let’s consider some steps you can take to achieve this.


1. Stay in your comfort zone as much as you can

Admittedly, you are going to have to learn a few basics. You absolutely have to know the differences between ethical, sustainable, responsible, impact and ESG investing. What type of companies will each of these avoid or seek out? Which features form a key part of each strategy and how do these make it a suitable or unsuitable choice for certain categories of client?


You don’t have to offer all options or indeed any of them at all, although you might have to turn some clients away as a result.


You will find it easier to integrate the solution if it complements what you are currently doing, whether that’s advisory or discretionary, active, passive, in-house or out-sourced. You shouldn’t need to work with new risk profiles, asset allocations, benchmarks or frequency of reporting.


You don’t have to come riding into your meeting room or Zoom call like an eco-knight on a green charger. Sustainable investment can very much be discussed in a framework of risk management, growth opportunity and economic transition. There will be clients with specific values and requirements that don’t match your off the shelf solution, but you can choose whether to offer them something different or refer them to a specialist.


2. Appreciate the FCA guidance - old and new

The information disclosed so far suggests the FCA is really trying to make it easier for both advisers and their clients to engage successfully in the activity of sustainable investing. Canary Wharf will after all be in trouble if sea levels continue to rise.


From the recent government RoadMap to sustainable investment:


“HM Treasury and the FCA are exploring how best to introduce sustainability-related requirements for financial advisors. A key aim will be to ensure that they take sustainability matters into account in their investment advice and understand investors’ sustainability preferences to ensure suitability of advice. Details of the proposals are subject to further consideration and ……. will be subject to consultation and cost benefit analysis.”


The need to ask about sustainability preferences is an additional task and compliance requirement but surely no more complicated than many of the other questions we have to ask our clients – definitely easier I would say than asking a retiring married couple how their situation will change on first death.


Work is also afoot to sort out the confusion about how to name, identify, categorise and measure the types of investment available – I am part of the advisory consultation group and will be speaking for simplicity. It is possible however that the new labels will be quite different to those currently in place, so we need to keep abreast of future developments.


While we wait for the forthcoming legislation and best practice to be finalised, the compliance issue to focus on is the existing PROD requirement to ensure that investment solutions match the needs of the target market – which means that you need to incorporate sustainability preferences into your client segmentation. This raises a question however. How can we segment our clients until we know what their sustainable investment preferences are? Unlike age, amount of wealth, level of knowledge and the other factors that decide the products we recommend, many advisers will not yet have details of their clients’ views on sustainability.

What’s the best way to address that – ask them!


3. Take it for a test-drive

If I was planning on creating a new sustainable investment proposition in my firm right now, the first thing I would do is speak to my clients about it. This could be done at a review meeting, a webinar, workshop or other event or a survey. This exercise would serve the following purpose:


  • Enable you to incorporate sustainable preferences into your PROD/ client segmentation framework.

  • Warm up your conversations with clients about sustainable investing and guide the best way to pitch this.

  • Provide early opportunity for client engagement with the new proposition.

Perhaps there is a concern that introducing the concept of sustainable investing might raise awkward questions, such as “why now, why didn’t you mention this before?” There are however many reasonable answers to this question. Word count excludes them here, but they are available on request.


4. Reality not rhetoric

As a self-confessed sustainability cheerleader, one thing I have taught myself is not to over expect or over deliver.


While campaigners say greening our pensions is 21x more effective than giving up flying or going vegan, we should be wary of promising that a single investment decision will save the world.


This I think is where the greatest challenge to your advisory skills lies – selling the benefits of a sustainable fund or portfolio without over-selling the direct impact it can have on the issues your client might wish to tackle.


A decision to invest sustainably can however be safely considered to be a vote for positive change, whether that it is acting in the interest of the climate and nature or making social improvements. With the GFANZ commitment at COP26, that $130 trillion of global capital is on the road to Net Zero, investing sustainably ensures your clients are driving on the right side of the motorway. Your role is to discuss with them whether they want to travel in the slow or the fast lane.


5. Seek support

If you are lacking in the time or the inclination to gain the knowledge, the client communications, the KYC and compliance processes, then find yourself a sustainable investment champion.


This could be someone else in your firm – an adviser, Paraplanner or graduate trainee who will enjoy getting their teeth into building a specialism in this area.


You can also look at the support offered by product and investment providers, although be aware that this may not always provide a totally holistic, independent view.


The other option is to bring in support from an external specialist.


Overstory Finance can assist with your sustainable investment learning, staff training, client engagement, shaping your investment proposition and integrating this into your compliance processes. For more information, e mail hello@overstory.finance