Sustainable investing is at an “inflection point,” as interest in ESG investing continues to expand beyond institutional investors to individuals, according to Michael Jantzi, the CEO of Sustainalytics, which supplies investors with ESG research and guidance (and is now part of Morningstar).
Jantzi also said he believed the COVID-19 pandemic had not inhibited the growth of interest in sustainability among investors. He spoke at Morningstar’s annual conference, which due to the pandemic’s impact is being held virtually this year.
“What’s interesting from my perspective is that I think the circumstances caused by COVID-19 have been a catalyst to this change,” Jantzi said. “The challenges and disruptions we face today are causing people to ponder, in a different way, the sustainability risks and issues we’ve been talking about for a long time.”
Jantzi said that interest in sustainable investing was reaching an inflection point even before the pandemic because the conversation among clients about sustainable investments had moved from considering the process of how ESG factors could be integrated into institutional investment management, and toward placing greater consideration on the outcomes such investing could achieve, which appeals more broadly to individuals.
“What is the impact of my investing process and portfolios on society? That’s a profound change,” Jantzi said. “Moving from process to outcomes is very powerful, and it should be no surprise that investors are embracing sustainability in a more robust manner.”
With interest continuing to expand among investors, wealth managers and advisors serving the retail market are contending with clients seeking answers on ESG options and opportunities, Jantzi said. As the market had traditionally been driven by institutions, he noted that financial advisors often lacked the research and tools to assist those investors who wanted to learn more.
“I would say individual investors have been politely knocking on the door of their financial advisors. They’re not knocking anymore; they’re pounding and demanding that conversation with advisors,” he said about investors’ ESG interest. “Advisors have faced a tsunami of change in their practices, and they need tools to help them have that conversation.”
Jantzi said there were numerous tools Morningstar hoped to be able to provide advisors and wealth managers as ESG investment expanded further into the retail space, including tools to help advisors manage funds, access (and understand) ESG research on a granular and portfolio level, and be able to report accurately to clients on ESG issues.
Additionally, Jantzi noted the Department of Labor’s recent proposed rule on ESG investing, which said that retirement plan fiduciaries could not offer ESG investment vehicles that knowingly heighten fees, reduce returns or boost risks to pursue nonfinancial goals. He noted the overwhelming majority of public comments from industry leaders that opposed the proposed rule, and called it an “outlier” to most international regulation, which he said pointed toward greater support for sustainable investing and finance.
“Politicians charged with regulatory frameworks are getting a strong sense of the way the winds are blowing,” he said.