Ivan Bajic

The investment landscape in Canada has seen a shift towards sustainable and responsible investing in recent years. 

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Aaron White, vice-president of sustainable investments with CIBC Asset Management, said this shift has been driven by increased awareness, accessibility and overall client demand. 

“Investors are increasingly interested in investing with their personal values in mind,” he said. 

According to the Responsible Investment Association’s (RIA) latest opinion survey, almost three quarters (73%) of respondents said they were interested in responsible investing. 

However, while 77% of respondents said they want their financial services provider to inform them about responsible investments aligned with their values, only 27% said they had ever been asked if they were interested.

In response to this growing demand, the Investment Industry Regulatory Organization of Canada (IIROC) amended its know-your-client and suitability guidance to include ESG considerations when discussing investment objectives. (Earlier this year, the European Securities and Markets Authority (ESMA) also proposed to make sustainability part of suitability.)

“IIROC has provided an avenue to enable advisors to have meaningful conversations with their clients surrounding their responsible investment goals and objectives,” White said.

And as the investment industry continues to evolve, White said clients are increasingly asking advisors to go beyond traditional financial planning considerations. 

Investors are becoming more interested in the non-financial impacts of their portfolios, and White said this presents a challenge for advisors as they navigate the client discovery phase. In the past, he said much of the disconnect has been due to a perceived lack of demand for ESG investing solutions.

But “largely, when investors are presented with a viable investment solution that meets both their financial and non-financial objectives, they take it.” 

The recent regulatory recommendations, combined with industry trends, presents an opportunity for advisors to differentiate their service and exceed client expectations, White said. 

The client discovery process has historically focused on only understanding a client’s financial situation, goals and objectives, which “has led to a narrow and one dimensional view of an investor’s needs,” White said. 

Further, when the client discovery conversation becomes about an advisor’s preferred approaches to investing, not the client’s, “investors are left with a lack of understanding of how their investments interact with their personal beliefs,” White said. 

Instead, advisors can talk to clients about “values-aligned” investing. Advisors who fully integrate IIROC’s new recommendations will also gain a deeper understanding of their clients’ beliefs and values, which will “allow advisors to create an engaging and personalized experience around investing,” White said. This, in turn, can lead to higher client satisfaction, more retention and referrals.

Lastly, not everyone has the same understanding of ESG. “Advisors that integrate values-aligned investing into their practice will need to be prepared to discuss the varying degrees of investing across the ESG spectrum.” To do so, White recommends advisors keep the conversation focused on the basics, use real life examples, and explain how returns may be enhanced, altered or detracted based on the strategy employed.

Fortunately, “the ESG and responsible investing landscape offers a breadth of investment options that allow advisors to customize portfolios to meet any investor’s financial and non-financial objectives,” White said.

This article is part of the AdvisorToGo program, powered by CIBC. It was written without input from the sponsor.