Prompted by an interview, thought I would share some quick thoughts on ESG.
This week a reporter reached out, looking to get some quotes from different independent financial planning firms on their use of ESG products. Thought I’d share some general thoughts on the products as a whole and why my company does not actively recommend these as part of our investment strategy.
Question 1: Do you ever recommend ESG products to your clients? Why or why not?
I do not recommend ESG to clients. The biggest issue with ESG is there is no formal framework for these types of products. Each institution and fund has their own parameters. Additionally, they are a new product, it is always wise to see real outcomes before clamoring to invest clients.
Questions 2: Do your clients ever ask to invest in ESG products? If so, which generation(s) do they usually belong to?
Clients often do inquire, largely because of the publicity these products have received and they are curious or feel they should at least consider them. Most of the inquires are from my older clientele, ones that are near or in retirement. I tend to assume that is because much of the publicity towards these investments are in the more traditional media spheres.
Question 3: Recent years have seen a fierce backlash to ESG, particularly from Republicans. Has that backlash influenced your view of ESG? Why or why not?
Not in particular. I avoid hyped products or new ideas with investing for a significant amount of time before jumping on board. History tells us what works with investments and what does not. Since we know what works best at this time (buy and hold for the long-term) there is no need to rush into a different direction. My view of ESG was and remains, that it is unclear exactly what the parameters of ESG investing really are and if clients will receive the investment returns they desire or need to achieve their long-term goals.
Question 4: In your opinion, what is the future of ESG? Will this kind of investing become more or less popular? Why?
I suspect it will be popular as long as the market returns are good. If and when we experience a serious setback in returns, these types of investments will go by the wayside. It’s always easy to do what is popular or new when it does not have downside, but the track records are unproven.
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