Increasingly, it is no longer enough for advisers to be reactive when clients ask about sustainable investing. It is vital that you have an ESG/Sustainable alternative as part of portfolio recommendations for your clients.

We have put together 5 questions you should be asking your clients when discussing sustainable investments ranging from how much clients now about ESG and sustainable investing to whether they need to see the sustainability credentials of underlying holdings.

  1. Do you want sustainable/ESG options?

An obvious first question but acting in the best interest of a client means delivering a solution that ties into a client’s interests. For some, it means investing sustainably, for others, it is not a factor. FASEA Code #6 states a solution must consider a client’s long term aims, which may involve investing sustainably.

  1. Do you know what ESG actually means?

This might seem like a simple question, but most investors are unaware that ESG is an investment process and not the means by which the “goodness” of a portfolio can be immediately assessed.

As an investment process, ESG takes into consideration the risk and downside potential of investing in a company (or investment) from an environmental, social or governance perspective. However, it does not mean that such an investment will not take place if the potential upside outweighs these risks. Understanding this difference is important to ensure you match investment suggestions with your client’s values.

  1. Do you want to make a difference to society through your investment choices?

Given that ESG is about investment process and doesn’t necessarily consider whether an investment delivers positively to society, unpacking this difference might narrow the selection of investment options. By narrowing these options, you will ultimately ensure that you are really acting in the best interest of your client by only suggesting solutions that match their views on sustainable investing.

The Lonsec Sustainable Managed Portfolios consider both ESG risk and sustainability measures. These sustainability measures focus on the goodness the funds included in the Portfolios and are underpinned by the United Nations’ 17 Sustainable Development Goals.

  1. Are there specific industries that you would prefer to exclude?

Each client is different and what one considers inappropriate could be appropriate for others Having a good understanding of what lines cannot be crossed is important and once you have this information, you can then identify a solution that meets your client’s requirements.

The filter tool in Lonsec’s iRate® platform allows you to exclude ten specific controversial industries from your product selection.  In addition, our Sustainability reports give in depth reviews of how products support sustainable outcomes and the extent to which any controversial industries are included in a portfolio. This way you can screen out any controversial industries that you client specifically does not want to invest in.

  1. Do you want to be able to see how much “good” your investment is delivering?

As the number of ethical and Sustainable products have grown, many are not as green or sustainable as they claim. With some solutions it is difficult to see exactly how they are delivering on their sustainability claims as the underlying holdings or progress against sustainable goals are not clearly reported.

If visibility of an investment’s sustainability promise is important to a client, you must identify solutions that report openly and clearly on these factors. Lonsec reports on its delivery against its Sustainable goals. The portfolios actively report against a number of factors such as reduction in CO2.


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