By Richard Cooper, business development manager at The London Institute of Banking & Finance.
Sustainable investing is increasingly taking centre stage and for paraplanners wanting to stay ahead of the curve, adapting to this green financial landscape is essential. Remember when electric cars were just a distant vision? Now, they’re an increasingly common sight on our roads. Similarly, sustainable investing, with its promise of long-term gains and good outcomes, is here to stay.
Why paraplanners can’t afford to ignore sustainable investments
Client investment preferences need to be considered under Consumer Duty, and the fast-growing and changing world of ESG investments offers potential that paraplanners simply cannot ignore.
There is a rising demand among clients for sustainable investments, so understanding sustainable investment opportunities might soon be as essential to a paraplanner as understanding traditional equities or bonds.
Think about it this way: if you were drafting a plan for a client who’s looking to invest in property, would you overlook a rapidly growing and improving part of the city to focus only on the established areas? Probably not. Similarly, sustainable investing presents opportunities that paraplanners may need to consider.
While it’s easy to think of sustainable investments purely in terms of environmental benefits, its implications run much deeper. Yes, it prioritises eco-friendly investments, but it also considers other social and governance (the ’SG’) factors. It’s about investing in companies that not only care for the planet but also their employees, communities, and stakeholders. Think of it as a three-way approach to investing where profit, planet, and people are all given due importance.
The attractive returns of sustainable investment
If the ethical angle doesn’t sway you, perhaps the financial one will. Sustainable investments don’t mean compromising on returns. In many cases, they’ve even outperformed traditional investments. For example, the Morgan Stanley Institute for Sustainable Investing found that sustainable funds outperformed traditional peer funds and reduced investment risk during the COVID-19 pandemic. Similarly, a study by The Economist Intelligence Unit (EIU) found that 74% of global investors said that their investments that integrate ESG factors performed better financially than equivalent traditional investments in the three years prior to 2020.
Moreover, as global policy tightens around environmental issues, companies that aren’t sustainable might face heavier regulations, penalties, or even become outdated and obsolete. It’s much like investing in a tech start-up poised for success rather than a fading giant unwilling to innovate.
Paraplanners have a very important role to play in this new landscape.
Crafting your sustainable investment strategy
So, where does a modern paraplanner begin? Start by analysing current market leaders in ESG and sustainable investments. Who are the key players? What sectors are outperforming?
Then, consider the tools and platforms that specialise in ESG and sustainable investments that you can access. These can help streamline the process and make your paraplanning journey smoother.
1. Stay informed. The world of ESG and sustainable investing is constantly evolving. Joining forums, attending seminars, and subscribing to journals focusing on sustainable finance will help you keep up to date.
2. Have client preferences been considered – have you asked the right questions? When evaluating an investment, do they meet the client’s investment preferences and if they were looking at ESG investments have you considered its long-term sustainability. What are its ESG credentials? How does it fare against its peers in terms of sustainable practices?
3. Prioritise adviser and client education. Many advisers and their clients may not fully understand sustainable investments – what it is that makes them different from other products and their potential to generate returns. As a paraplanner you can help them to bridge that knowledge gap.
4. Diversification is still key. While ESG investments can provide benefits, it’s essential to maintain a diversified portfolio. Investing in the right mix investments may include a mix of traditional assets as well as green bonds, sustainable equities, and other ESG assets. What’s important is ensuring client investment preferences have been considered.
5. Keep on top of upcoming regulatory changes. What impact will any recent and upcoming regulatory changes have on the ESG landscape and will any of your existing processes need to change as a result?
Green investments: the exciting road ahead
The shift towards ESG and sustainable investments isn’t just a passing trend. It’s a transformative wave reshaping the financial world – and paraplanners have a golden opportunity to help lead this transformation.
Forthcoming regulatory changes which include the likely announcement of the outcome of the consultation into greenwashing and The Sustainable Disclosure Regime (SDR) with new ESG labels and reporting – will change the landscape even more.
Regardless of where you are in your career, remember: sustainable Investing is not just about saving the planet. It’s about providing sustainable returns, as well as future-proofing your strategies, aligning with evolving client needs, and staying relevant in an ever-changing financial landscape.
As the old adage goes, “the best time to plant a tree was 20 years ago. The second-best time is now.” So, if you haven’t done so already, now is the time to make ESG and sustainable investing a pivotal part of your paraplanning toolkit.
