3 reasons to incorporate sustainable investing into your practice

1 MIN. READ

Jun 14, 2024

As personalized financial services gain momentum, advisors can highlight sustainable investing as a key tool in aligning portfolios with clients' preferences.

Sustainable investing is a hot topic right now. But it’s more than just hype. A full 73% of North American wealth advisors report their clients are interested in sustainable investment strategies.1 And more than 1 in 5 advisor models today include sustainable products, which marks an increase of nearly 11% over the past three years.2

In the new Sharing Perspectives whitepaper, “The Opportunity with Sustainable Investing,” Envestnet and BlackRock offer evidence that sustainable investing can be a concrete way to distinguish your practice from the competition and fortify client connections. As the trend toward personalization continues to gain momentum, sustainable investing may be a crucial strategy for aligning portfolios with your clients’ preferences.

Three reasons why advisors choose sustainable investing

When it comes to addressing clients’ diverse needs, many advisors are increasingly drawn to sustainable investing. Here’s why:

1. It offers an opportunity for growth

Offering tailored strategies to existing clients can pave the way for business growth and enhance your ability to attract new clients. An 18-month analysis by Envestnet Analytics revealed that advisors who allocated a minimum of 10% of their assets to sustainable products on the Envestnet platform achieved higher asset growth rates in contrast to those who did not.3 Additionally, these advisors saw fewer redemptions, underscoring the possible benefits of integrating sustainable investments into your practice.4

Research shows that high-net-worth (HNW) investors5, millennials6, and women7 are particularly interested in sustainable investing, and introducing sustainability-based strategies can be a strategic way to connect with these clients. Offering sustainable investment choices can also enable advisors to connect with the prospective beneficiaries of the unprecedented transfer of wealth from baby boomers to younger generations.

2. It enhances the stickiness of client assets and increases cross-sell opportunities

Understanding your clients’ values and goals not only enhances asset stickiness and cross-selling opportunities but also fosters stronger client loyalty and attracts long-term-minded clients, all contributing to sustained business growth.

Envestnet's analysis reveals that investors holding sustainable investments exhibited higher investment retention rates compared to those without such investments. In 2021, redemption rates in sustainable investments were 28% compared to 31% in traditional investments, and in 2022, they were 25% and 29%, indicating that clients may be more likely to hold investments aligned with their values through short-term market movements.

Includes both Envestnet platform and Tamarac platform users. Source: Envestnet Analytics, as of 12/31/22.
3. It can help drive outperformance and provide access to investment opportunities

Incorporating sustainability factors into the investment process can help deliver competitive performance. In fact, BlackRock’s research shows that, on average, public companies with the highest environmental, social and governance (ESG) ratings outperformed the global broad market index, and peers with lower ESG ratings underperformed since the start of 2019.8

Along with competitive performance, sustainable investing offers an opportunity to unlock and deliver value to clients through exposure to emerging and innovative investment themes like clean energy, sustainable agriculture, water efficiency technology, and more.

Elevate your business with sustainable investing

Envestnet and BlackRock share a steadfast commitment to supporting advisors interested in identifying and capitalizing on opportunities related to sustainable investing. By leveraging our advanced tools and resources, you can gain a deeper understanding of your clients’ preferences, effectively align sustainable investment strategies with your business objectives and your clients’ core values, and foster enduring client relationships.

View the full whitepaper: The Opportunity with Sustainable Investing

For tips on how to discuss sustainable investing performance with your clients, watch our Navigating Sustainable Investing video.

Discover more about alternative solutions and tools from Envestnet and BlackRock.

Dana D'Auria

Written by Dana D'Auria

Co-Chief Investment Officer and Group President, Envestnet Solutions

Dana plays a key role in the ongoing growth and alignment of Envestnet’s fiduciary solutions, as well as its research, overlay, and portfolio management resources. Also a member of Envestnet | PMC’s Investment Committee, Dana has more than 15 years of experience managing and implementing investment solutions for wealth managers.

View all posts by Dana D'Auria

Sustainable investment strategies are identified with the support of third-party research. All data, including data used to initially identify sustainable investment strategies, are believed to be from reliable sources; however, we make no representation as to its accuracy or completeness. The assessments are subjective by nature, and may or may not be accurate, complete, or reflect the beliefs of some investors.

 

Sustainability metrics are for informational purposes only and are subject to change. Such metrics should not be interpreted as a guarantee that a portfolio will be protected against losses or achieve any particular sustainability score, rating, or other related metric. Including investment strategies that focus on a specific impact theme in a portfolio may reduce the investment universe or result in different exposures from funds or strategies that do not use such criteria. This may have a positive or negative effect on investment performance relative to strategies which do not utilize sustainable investment methodologies. In addition, while certain products may seek sustainable outcomes, there is no guarantee such results will be achieved. While our tools are designed to help advisors understand and implement the expressed preferences of their clients, this may not be possible in all situations due to inherent limitations on available data and investment options.

 

BlackRock through a holding company subsidiary, BlackRock, Inc. (“BlackRock”) owns a non-controlling interest in Envestnet’s parent company, Envestnet, Inc. (NYSE: ENV).

 

The information, analysis and opinions expressed herein are for informational purposes only and do not necessarily reflect the views of Envestnet. These views reflect the judgment of the author as of the date of writing and are subject to change at any time without notice. Nothing contained in this piece is intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type.

FOR INVESTMENT PROFESSIONAL USE ONLY ©2024 Envestnet. All rights reserved.

1“Exchange Traded Funds: The global view from asset owners and asset managers.” Institutional Investor and BlackRock, 2023.

2These figures reflect advisor model data collected by BlackRock over the prior 12 months from 17,073 models. The models are grouped into risk profile cohorts determined by equity weighting. Figures describe the average across all portfolios in the cohort for the metric in question. BlackRock’s proprietary risk model data is supplemented by asset allocation and fund characteristic data from Morningstar. The portfolios analyzed represent a subset of the industry, and not its entirety. As such, there may be certain biases present in the data that reflect the advisors who choose to work with BlackRock to analyze their portfolios. All data is as of 2023-06-30 unless otherwise specified.

3Envestnet Analytics, as of 12/31/23. Includes both Envestnet platform and Tamarac platform users. Sample size: 12,406 traditional and 2,295 sustainable advisors.

4Envestnet Analytics, as of 12/31/22. Includes both Envestnet platform and Tamarac platform users.

5The Cerulli Report — U.S. High-Net-Worth and Ultra-High-Net-Worth Markets 2022: Evolving Wealth Demographics analyzes the U.S. high-net-worth (HNW) (investable assets greater than $5 million) and ultra-high-net-worth (UHNW) (investable assets greater than $20 million) marketplaces.

6Nasdaq, as of September 2022. https://www.nasdaq.com/articles/how-millennials-and-gen-z-are-driving-growth-behind-esg.

7Janus Henderson’s 2023 Investor Survey: Insights for a Brighter Future. https://www.janushenderson.com/en-us/advisor/insights/investor-sentiment-survey.

8BlackRock using data from MSCI, S&P, and STOXX, as of June 30, 2023.

 

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