Roadmap to ESG - Part three
It’s the third in our Roadmap to ESG series, compiled with the help of consultancy firm NextWealth, to help financial advisers prepare and implement a robust ESG approach. In this part, we focus on something businesses tend to struggle with - formulating a strategy.
From the discussions we’ve had with financial advice professionals for this series, it’s clear that most have found agreeing an ESG strategy extremely difficult and that it takes a very long time. Some have been working towards formulating a strategy for 18 months to two years and have still to commit the strategy to paper.
Why? Many blame the highly complex nature of ESG investing and the lack of robust data to inform decisions. The issue seems to be that many firms are looking at the subject matter and getting bogged down.
What can help is being clear about what a strategy is and what it isn’t.
Don’t confuse strategy and process
A strategy is a statement of what you want to achieve. It should inform the next step: the process. Mixing the two up can lead to wasted time and frustration.
As an example, let’s consider something we touched on in part two. Most firms are constantly asked to donate money to charitable causes, often by employees, friends and clients. Having a clear strategy for managing this, that is written down and shared with all stakeholders, can completely remove the headache of having to say ‘sorry but no’.
Here’s an example.
Philanthropy strategy
For the strategy, you may decide that your firm will donate money over 12-months to one chosen national charity and one chosen local one. That’s it – strategy sorted. Deciding this doesn’t take long and it makes it much easier to go to the next stage – formulating a process.
Philanthropy process
The process stage is likely to take longer but it will be easier to achieve because you have a clear focus. For instance, it may involve asking employees to nominate the national and local charity. This would be converted to a shortlist of three national and three local charities and clients asked to vote for the ones they would like to see the firm support. This works two-fold: it tells clients you are ‘giving something back’ and it also informs them that you are focused on specific charities so will not be able to donate to others.
ESG investing strategy process
In a similar way to above, separating the ESG investing strategy from the process should result in a much more efficient and rewarding result.