Care About Climate Change? 7 Questions You Should Ask Your Investment Advisor

BY Michael Pereira Head of Wealth Management Group, Bank of the West

Nov 29th 2021

You already know investing can help create the future you want for you and your family, and for the planet. The question is does your advisor share your belief in sustainable investing?

You’ve probably seen the stream of headlines about dramatic growth in sustainably-focused investing, like CNBC’s “Money invested in ESG funds more than doubles in a year.”1 Investors are eager to apply environmental, social and governance (ESG) criteria to their portfolios because they want to do good for society and the planet. Plus, there are numerous studies that show ESG investments can perform very competitively2 with conventional investments.

More than a third of all assets in five of the world’s biggest markets—totaling $35.3 trillion—are sustainable investments, according to a 2021 report.

All ESG funds are not created equal.

Amidst the stampede into sustainable investments, the right advisor can help. Keep in mind that all ESG funds are not created equal, and, perhaps more importantly, some researchers3 are flashing caution lights in the ESG lane.

Just as not all ESG funds are winners, not all advisors who hang out an ESG shingle are really up to the task of managing your money to achieve both social and environmental change and solid financial returns. To achieve your goals in ESG investing, you’ll want an advisor with the right knowledge and experience, and, equally important, their firm should demonstrate a commitment to sustainable finance.

Here are some questions that should help you determine whether an advisor and the company they work for can help you invest for impact.

Questions for Finding an ESG Investment Advisor

1. “What’s your experience with impact investing?”

Ideally, your advisor has experience transforming clients’ portfolios to include impact investments.

Impact investing, which is also referred to as socially responsible investing, or ESG investing, is not an approach that all advisors focus on or are even familiar with. Understanding impact investing requires work, and you want an advisor who has done their homework.

The right advisor will know that investing based on your values does not have to mean sacrificing financial returns. If we just look at 20204, US sustainable equity funds outperformed their traditional peer funds by a median total return of more than 4 percentage points and US sustainable bond funds outperformed their traditional peer funds by a median total return of just under 1 percentage point. Some of that outperformance in 2020 was because ESG funds had less exposure to some of the sectors of the economy wracked by the pandemic.

2. “How can you help me invest with purpose?”

Any discussion of impact investing should begin with an exploration of your values and goals—the principles that should drive your investing. During the height of the pandemic, for example, workplace safety became a hot topic and some investors sought funds and companies that showed a commitment to workers’ rights5. The right investment advisor can help align your social priorities with investment opportunities. Your advisor can help with a straightforward three-step process:

  • Divest: Review all the investments in your current portfolio to see if they align with your values or whether you want to remove them from your portfolio. Do you know what companies are in your mutual funds?
  • Invest: Choose investments that fit your values as well as your risk tolerance and investment objectives.
  • Engage: Many impact investors make their views known through voting on shareholder proxy measures.

3. “What are my options for impact investing?”

Your advisor should be able to guide you through the investment approaches purpose-driven mutual funds and exchange-traded funds take. These include criteria for exclusionary or inclusionary screening or thematic investing. They should steer you clear of funds that may not be as green as they claim and they should be able to uncover new and interesting opportunities.

Impact investing doesn’t have to be all-or-nothing.

Advisors can also design strategies that allow you to choose individual stocks, ETFs, or other securities. Advisors that offer a spectrum of solutions are better equipped to find the one that’s right for your values and objectives.

Impact investing doesn’t have to be all-or-nothing. If you’re just beginning to explore the space, it’s perfectly fine to dip a toe in the impact investing waters before deciding to fully dive in. If you want to do some of your own initial research, a good place to start is the Education Center6 at the Forum for Sustainable and Responsible Investment.

4. “What standards do you use to decide whether something truly is ESG or not?”

The world of impact investing this summer got a wake call about greenwashing7. US regulators are on watch for inflated and misleading claims amidst rising investor interest in sustainable investing. When it comes to investing, beware of advisors and funds that tout something as a good ESG investment without actually paying much attention to the E or the S or the G.

It’s worth asking an advisor what standards they use to decide whether something is truly an impact investment. There are proprietary tools for evaluation as well as many name brand ratings services, such as Morningstar, Bloomberg, MSCI ESG Research, and others with a focus on ESG. If an advisor can’t provide a clear approach to screening investment opportunities then perhaps that is a sign to keep looking for an advisor who truly matches your values.

5. “Do you personalize or target sustainable investment options?”

A good advisor should be able to personalize your investment portfolio to your specific needs and interests. For many investors who want their wealth to make an impact it’s not enough to simply say, “Oh, you care about the environment? Here’s a fund.”

The ability to tailor investments to more specific areas of interest such as water, climate, women’s empowerment, or global development can be a sign that a prospective advisor has deep knowledge of impact investing.

6. “How can I align my investing with my philanthropic goals?”

There’s no reason one’s investing and philanthropy can’t magnify each other’s impact. If your advisor or advisor’s institution helps to manage both your personal investments and your charitable giving, then it creates the opportunity for synergies between the two.

“Over time, your philanthropic and investment dollars can converge to support the same impact goals.

For example, you can put dollars designated for charity into a donor-advised fund (DAF). Assets contributed to a DAF generally receive an immediate tax deduction, and are always invested for tax-free growth. The donor can recommend for assets to be invested in available socially responsible funds, and the proceeds are then donated to charity. Be aware that assets contributed to a DAF can not be taken out; once a donor has contributed assets to a DAF to claim a tax deduction, those assets are no longer accessible other than to be distributed to charity. Over time, your philanthropic and investment dollars can converge to support the same impact goals.

There are almost 120,000 foundations in the US. If you’re a part of one, consider using payouts to make program-related investments into charitable organizations. The organization gets financing that might have been impossible to obtain from conventional lenders. The foundation receives a return on its capital.

7. “Aside from investments, what is your CSR stance?”

If you put your money to work helping the world, wouldn’t you want the financial firm you work with to do the same through its corporate social responsibility program, or CSR?

CSR refers to how a company, in this case your investment firm or financial institution, makes a positive impact. CSR can mean donating to non-profits, working with environmental organizations, employee volunteer drives, or other forms of doing good.

While this is separate from your own impact investing, it can be a useful window into how committed your institution is to building a sustainable future.

“We’re in an era of conscious capitalism.

We’re in an era of conscious capitalism. Investors are realizing that every dollar can have an impact, one they can often control. Your advisor can be a vital partner in helping you understand where your money is going—and help you use it to make an impact.

Author image

Michael Pereira Head of Wealth Management Group, Bank of the West

Michael Pereira is Executive Vice President, Group Head of Wealth Management for Bank of the West, and a member of Bank of the West's Executive Management Committee. Prior to leading Wealth Management, Michael headed the bank’s Growth Acceleration team, charged with driving growth and managing key initiatives across all lines of business, including advanced analytics capabilities, performance management, as well as enterprise-wide line of business initiatives focused on growing the company and its customer base. Michael's career with the BNP Paribas Group has covered projects and assignments around the globe in India and China, the Middle East, Africa, Europe and the US.

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1) CNBC, “Money invested in ESG funds more than doubles in a year.”

2) New York University STERN Center for Sustainable Business, “ESG and Financial Performance: Uncovering the Relationship by Aggregating Evidence from 1,000 Plus Studies Published between 2015 – 2020.”

3) Bloomberg Green, “Trillion-Dollar ESG Boom Rings Bubble-Trouble Alarm in New Study.”

4) Morgan Stanley, “Sustainable Funds Outperform Peers in 2020 During Coronavirus.”

5) Reuters, “‘Do the right thing’: Pandemic puts workers’ rights on ethical investor hitlist”

6) The Forum for Sustainable and Responsible Investment Education Center:

7) Wall Street Journal, “U.S. Authorities Probing Deutsche Bank’s DWS Over Sustainability Claims.”

Disclosures small arrow indicator

Member FDIC. Equal Housing Lender. © 2023 BMO Harris Bank N.A. Bank of the West is a trade name used by BMO Harris Bank N.A. Banking products and services are subject to approval and are provided by BMO Harris Bank N.A.

Impact investing focuses on investments in companies that relate to certain sustainable development themes beyond traditional financial factors and demonstrate adherence to environmental, social and governance (ESG) practices. Therefore the universe of investments may be limited and investors may not be able to take advantage of the same opportunities or market trends as investors that do not use such criteria. This could result in relative investment performance deviating from other strategies or broad market benchmarks, depending on whether such sectors or investments are in or out of favor in the market.

Securities and variable annuities are offered through BancWest Investment Services, a registered broker/dealer, member FINRA/SIPC, and SEC Registered Investment Adviser. Financial Advisors are Registered Representatives of BancWest Investment Services. Fixed annuities/insurance products are offered through Bancwest Insurance Agency in California, (License #0C52321) and through BancWest Investment Services, Inc. in all other states where it is licensed to do business. BancWest Insurance Agency is a trade name of BancWest Investment Services, Inc., a subsidiary of BMO Harris Bank N.A.

This is not an offer or solicitation in any jurisdiction where we are not authorized to do business.

BMO Harris Bank N.A. and its various affiliates and subsidiaries are not tax or legal advisors.

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