How can impact investing improve the quality of your client relationships? James Lawson (pictured) of Tribe Impact Capital highlights practical ways you can build greater engagement with clients
Perhaps on your last holiday you were shocked at the amount of rubbish on the beach. Or you sympathise with the strain that nurses and GPs endure as a part of a stretched health service. Or you’ve watched one of David Attenborough’s recent epics on the BBC or Netflix. Or you’ve read that the interest in sustainable and impact investing is twenty times higher than traditional investing.
Where ever you’ve been in the past twelve months, you’ll recognise that sustainability and impact are hot topics. But the key challenge as a professional adviser is what should you do about it? Can you better-use the exclusion lists on your due diligence questionnaire, are any existing ethical investments inappropriate, or how do you even start this conversation with your client, if you have not done so before?
It’s a challenge which we’ve been supporting advisers with for the past three years and has culminated in our Impact Discussion Guide. I’d like to share some of the practical tips from that guide here for both any existing ethical investors you may have as clients, as well as the rest of your current and future client book.
What to do about your existing “ethical” clients
With those clients whose objectives focus on ethical investments, you’ve probably had a conversation around topics/sectors they want to avoid: alcohol, fossil fuels, tobacco, etc.
In discussing sustainability we suggest three steps. First, we should acknowledge that there’s nothing wrong with using negative screens. It’s just that there may be a better way.
At Tribe we position negative screens as “avoiding the problem”, which is to be distinguished from impact investing’s mantra of “finding the solution”.
The next step with those of your clients who have ethical investments is to get to the bottom of what they see as “the problem” and why. So, for tobacco exclusions, their underlying concerns may be around healthcare and addiction for those excluding tobacco. Or those with oil and gas exclusions may see “the problem” as environmental degradation and climate change.
The third step is to match “the problem” with a potential solution. For example, global carbon emissions reached an all-time high of 33.1 gigatons in 2018; so oil and gas emissions are a problem. Rather than excluding them and avoiding the problem, a solution might be to consider including businesses in the client’s portfolio that are transitioning to low carbon economy, or the electrification of vehicles, or green infrastructure. For more ways to map exclusions to underlying challenges and their solutions, see Tribe’s Impact Discussion Guide.
How to start the conversation with “non-ethical” clients
This is all about making investment relevant to your clients and their lives. You will, most likely, have the majority of your clients in mainstream, non-ethically focussed investments. Some of these clients will be fascinated by their investments and regularly query the underlying strategies and holdings of your selected managers. But most won’t.
The reason that most clients don’t want to talk that much about their investments is because they’re simply not that interesting. Investing is a fast-moving and complex environment, coupled with a lot of noise around terminology. Clients do not link their investments to “real life”. But impact investing is often directly connected to issues that clients are hearing more about and which matter to them. It’s making investing interesting. No, it really is.
Tribe’s Impact Discussion Guide has regular snippets from the news that can be related to conversations around investments. For example:
Did you see in April that they found microplastics on pristine wilderness at the top of the Pyrenees and then a month later, in a separate expedition, plastics were found at the bottom of the deepest part of the seabed? Many industries are trying to find solutions to this including reverse-vending machine (RVMs) manufacturers. These RVMs are in supermarkets in the UK and around the world, where shoppers hand in their plastic bottles in return for money off their shopping. In doing so, this is helping to take plastics out of the economy.
Did you know that over a decade ago obesity became a bigger problem than hunger? Nutrition is a critical component of healthcare and there are a number of businesses that are helping to improve this, such as those trying to keep the same tastes of popular foods but eliminate the sugars.
Naturally, there isn’t a single problem nor any simple solution. But stories like these and others can make investments interesting again.
Why stories are so important
Rather than being told how the world is affecting their investments, you can now turn that question on its head when having discussions with your clients: how are your investments affecting the world?
We believe that sustainable and impact investments are directly relevant to your clients and prospects because they’re related to their everyday lives. Which, in turn, results in clients becoming more interested and engaged with their investments and the whole financial planning process. If investors understand the stories behind their investments, Tribe’s research has shown that this makes them more comfortable with market volatility. This means they’re less likely to panic during periods of volatility through the market cycle, buying high and selling low. So they become better investors.
These are great outcomes for your clients, your business and the planet.
One of our favourite mantras at Tribe is that perfection is the enemy of progress. And this is very relevant in the field of sustainable and impact investing where there will always be compromises and contentions as the impact market is still developing. But these are going to be necessary if we want to make progress and we are open with our clients about these.
Like many financial advisers, we often use the word “journey”. Our clients are on one, as we are too. And if we can support you on yours, please do get in touch. We’re offering readers of IFA Magazine free access to Tribe’s Impact Discussion Guide. For your copy of the guide just email email@example.com and quote the code IFAMTIDG.
 See Dynasties (BBC 2018), Climate Change: The Facts (BBC 2019) or One Planet (Netflix 2019)
 Tribe Impact Capital, Google Trends, 2018
 International Energy Agency, 2019
 Nature Geoscience, 2019
 The Five Deeps Expedition, May 2019
 Lancet, 2018
 Investing for Humans, Tribe 2017 https://www.tribeimpactcapital.com/news/investing-for-humans/
About James Lawson
James is a co-Founder and Partner at Tribe Impact Capital, the UK’s first dedicated impact wealth manager. Tribe builds portfolios for wealth holders to align their financial requirements with their individual values and the impact they want to create. Tribe is a B Corporation, as well as signatory to the UN PRI, UN Environmental Programme Finance Initiative, and HM Treasury’s Women in Finance. In 2018 Tribe was elected “Best for the World” (representing the top 10% of B Corps globally) and won PAM’s Innovation Award and WealthBriefing’s European Specialist Investment Manager Award. James started his financial career at UBS Wealth Management in London and Switzerland. He then founded the global wealth insight consultancy, Ledbury Research. He has a Masters in Economics and holds the CFA designation.