Environmental, Social and Governance (ESG) investing is empowering. Exciting. Overwhelming.
The possibilities for sustainable investing can seem practically endless. The ESG banner is so broad that strategies beneath it can cover extremely wide-ranging ground. In some cases, ESG strategies tackle only a single aspect of ESG. This makes sustainable investment strategies extremely difficult to compare. Consider this: a strategy which seeks to reduce fossil fuels will look very different, and deliver very different outcomes, than one which insists on more female representation on a corporate board. Yet both of these are considered “ESG” approaches to investing.
A concern, too, is that ESG strategies may increase risk or reduce returns. Whether or not this is acceptable to clients, advisors need to make sure that such variability in their clients’ overall portfolio is taken into account. A sustainable strategy with returns that vary widely from the standard benchmark is not a simple add to existing holdings.
Your clients may not even know what they want from sustainable investing. That’s OK. The ESG landscape is extremely fluid. There is very little agreement between companies and asset managers, let alone between asset owners, as to what constitutes an effective ESG strategy.
There are multiple layers of difficulty at play—first, wealth advisors need to cover a ton of ground to figure out which options are available. Then they must guide clients toward specific strategies that claim to meet their sustainability goals. (This is particularly difficult when the goals themselves are moving targets.) Lastly, advisors have to ensure that the selected strategy can actually deliver on its promises.
It doesn’t need to be so complicated.
Online platforms are capable of simplifying the process of ESG investing. Wealth managers can help their clients choose the degree, type, and/or specific ESG investments that best fit their overall portfolio. Separately managed account platforms offer solutions that run the gamut from minimal ESG tilts to fully client-directed sustainable solutions. Through their new RIA-based offering, multi-asset specialist QMA delivers years of institutional ESG investment experience this way—all in an easy-to-use online format.
QMA’s proprietary ESG approach is designed to produce disciplined, repeatable results. We evaluate companies’ ESG attributes through a sophisticated lens. As companies generally self-report their ESG data, we use key metrics to analyze the level of actual sustainability vs. “greenwashing” that goes on. This helps us minimize exposure to ESG traps and the performance drag that is associated with them.
QMA doesn’t rely on ratings providers for sustainability data. We steer clear of bias and personal interpretation by using a broad-based ESG framework. It focuses solely on material issues that are important within certain industries, to help identify ESG attributes that have likely been underappreciated by the market. It is also highly transparent in terms of decision-making. This best-in-class guidance helps us deliver clear, dependable, actionable ESG choices for your clients—all at surprisingly achievable price points.
Wealth advisors can also offer multiple levels of ESG customization to clients through PGIM Quant Select, toggling between the environmental, social and governance dimensions to select their clients’ preferred level of ESG exposure. Further options for personalization can include client-directed stock restrictions and specific values-based investing, which help your clients align their portfolios with their personal beliefs.
PGIM and QMA are excited for the chance to partner with wealth advisors to deliver their decades of active multi-asset investing experience, along with ESG and tax management solutions, to retail clients.
ESG investing doesn’t have to be overwhelming.