Environmental, Social, and Governance

How to Have Better ESG Conversations With Your Clients

Talking to your clients about sustainable investing

ESG—environmental, social, and governance--investing has grown in prominence in recent years amid increasing interest in sustainability. And due to widespread media attention, there is a possibility that your clients will ask about it, if they haven’t already. Financial professionals who demonstrate a thorough understanding of ESG investing may be able to differentiate themselves from the competition, retain multigenerational clients, and grow their book of business. 

Younger generations present a significant opportunity, as ESG will likely influence where they put their money. According to a 2021 McKinsey study, those aged 25-44 are much more inclined to consider ESG when choosing investments, suggesting that sustainability will be increasingly relevant in investing conversations.

Younger investors are more likely to prioritize ESG conversations

Split of investors who regard ESG as a top three consideration when choosing investments (% of investors)

Chart showing the distribution of how investors prioritize ESG by age group and amount of investable assets. 41% of the 25-44 age group in the <$1M and $1M-5M brackets, and 25% in the $5M-25M bracket, described ESG as a top three consideration when choosing investments. The percentages decline steadily as investor age increases, with only 5% of the >65 group in the $5M-25M bracket prioritizing ESG.

Source: McKinsey & Company, US wealth management: A growth agenda for the coming decade; McKinsey Global Wealth and Asset Management Practice (2021, "n"= number of investors, n=3,776 for <$1M, n=1,709 for $1M-$5M, n=389 for $5M-$25M) 

Explaining the basics

If a client or plan participant is curious about ESG, start by determining how much they already know. If they’re unfamiliar with sustainable investing, start by providing a foundation of the three factors and why they matter:

  • Environmental factors in an investing context may involve looking at a company’s carbon footprint, its plan to reduce its footprint, or whether its operations are responsible for pollution. Additionally, investors can explore a company’s current and long-term resource and materials usage and how their operations impact the environment.   
  • Social considerations relate to how a company’s actions affect society and how society perceives those actions. For example, many Western corporations stopped operating in Russia after the invasion of Ukraine, in part due to public pressure. Other factors include how companies treat their employees, their corporate culture and meritocracy, and their general stewardship of the communities in which they do business. This factor is the least well-defined of the three. 
  • Governance is focused on the importance of companies having good leadership and oversight at the management and board levels. Many corporate scandals (Enron, for example) have occurred because leaders looked the other way, resulting in disastrous consequences for investors. Other elements to consider include executive compensation, involvement in lobbying, and accounting and taxation policies.

It’s important for your clients to have this foundation to inform later conversations about portfolio objectives. For example, ensure that your client understands that the set of investment criteria represented by ESG provides an additional layer of assessment and insights that corporate financials only sometimes offer.

Three approaches to ESG

There is no singular approach to ESG, so it’s best to frame it as a spectrum when talking with clients or plan participants. However, there are a few ways that ESG is commonly implemented for portfolios: Integration, Socially Responsible Investing Strategies, and Impact Investing. 

Infographic describing three types of ESG strategies. ESG Integration Strategies consider factors to enhance performance. Socially Responsible Investing (SRI) Strategies stress values-based investment parameters, regardless of impact on performance. Impact Investing Strategies focus on effecting change through influencing the company or issuer.

How T. Rowe Price views ESG

Because environmental, social, and governance factors are material and can impact performance, we embed these considerations into the investment process at T. Rowe Price. In supplementing traditional fundamental security analysis with an ESG lens, we get a comprehensive view of a company’s prospects and can make more informed investment decisions for our clients. 


Sustainable Investing at T. Rowe Price

Learn more about our approach to ESG Investing

All investments are subject to market risk, including the possible loss of principal. Impact investing strategies may not succeed in generating a positive environmental and/or social impact. The incorporation of environmental and/or social impact criteria into an investment process may cause a strategy to perform differently from a strategy that uses a different methodology to identify and/or incorporate environmental and/or social impact criteria or relies solely or primarily on financial metrics. There is no assurance that any investment objective will be achieved.

ESG considerations form part of our overall investment decision making process alongside other factors to identify investment opportunities and manage investment risk.  At T. Rowe Price, this is known as ESG integration.  As part of our wide range of investment products we also offer products with specific ESG objectives and/or characteristics.


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