Speaking at the Responsible Investment Association of Australasia (RIAA) national conference, a panel of advisers discussed working with clients on the implementation of environmental, social and governance (ESG) strategies.
All panellists agreed ESG was not “one and done” and needed to be a constant conversation an adviser had with clients. However, Farren Williams, adviser and partner at Koda Capital, said there were examples when a change could be more sudden.
This could be when working with different family generations or with a company where the leadership changed.
“If you are working with a couple or a family with multiple generations, or with a non-profit company, where people have different perspectives, then the conversations you have at the beginning about priorities and exclusions can shift over time. You can see a gradual shift or a dramatic shift that happens all of a sudden when the power in the decision-making shifts to a different person.
“This can lead to a dynamic tilt in allocation, so you have to be open to restarting those conversations all over again as one member can change the whole balance.
“Particularly for non-profits, you can find they can have conservative views, there can be a fiduciary duty and there can sometimes be a reticence in terms of feeling they are going too far outside the lines beyond what their peers are doing. Other times, they are suddenly looking for greater alignment and positive impact.”
Another scenario was not where the clients’ views changed but where the reputation and ranking of certain companies changed, which affected whether clients wanted to hold them or not.
Chris Lang, financial adviser at Ethical Choice Investments, gave the example of Tesla, which came under scrutiny after it was removed from the S&P 500 ESG index in 2022 over a lack of low-carbon strategy, racism and poor working conditions.
“Tesla pre-COVID used to be a fantastic company and was doing really great things and changing the way we used cars. It was really pushing forward to a sustainable future.
“But since COVID-19, there’s been an understanding that maybe the governance side of the company is falling down a bit and there’s probably some cultural issues there as well.”
Dave Rae, financial adviser at Ethinvest, said the main focus was to keep the conversation open throughout the relationship with the client.
“At the SOA meeting and the implementation meeting, it’s easy for the client to say they don’t want to be invested in certain things, but when you drill down into it, it may only be a 1 per cent holding and they are okay with it because it is so small. Others will still want to avoid it.
“Their views change over time and something they said in a review two years ago can be different to what they think now, so make sure you keep having that conversation.”
