- Bank of America is seeing demand for ESG investing products across wealth level and age.
- But there is also “a lot of misinformation,” the bank’s top ESG investing strategist told Insider.
- Cutting through that means demystifying ESG through straightforward client conversations.
- See more stories on Insider’s business page.
As head of sustainable and impact investment strategy in Bank of America’s chief investment office, Jackie VanderBrug has a front-row seat to the fast-growing world of environmental, social, and corporate governance investments.
VanderBrug shapes the way sustainability considerations are woven into clients’ investments, leading the work for the firm’s private bank and Merrill Lynch Wealth Management business, among the largest US wealth managers with $2.9 trillion in client balances through March. Bank of America’s private bank reported $558 billion in client balances for the first quarter.
The firm is seeing demand for ESG investments across clients’ wealth levels and ages, though interest in the space undoubtedly skews younger, she told Insider. Like other firms diving into the relatively nascent industry, there have been growing pains.
“There’s also a lot of misinformation,” VanderBrug said. “So we’re trying to demystify sustainable investing.”
A common belief she has found around ESG is that the style of investing will cause investors to underperform the market, since they are limiting their investable universe and will lose out on gains. But VanderBrug said her research has found that this is not the case.
One facet of the bank’s approach in getting to the heart of how a client should consider sustainability is what she calls the “ABC” framework: avoid, benefit, and contribute.
Advisors find clients are generally looking to avoid certain areas depending on their preferences, or because they have found investments score poorly by ESG metrics; favor investments they think will benefit various social or environmental practices; or help contribute to measurable outcomes around such an initiative, VanderBrug said.
“It’s an opportunity to demystify the conversation and also to keep it in a dialogue, because where we find this goes awry is when anyone feels like there’s a moral superiority or mandate going on as opposed to a dialogue around your personal preferences,” she said.
New trends across ESG
The conversation around what it means to invest sustainably and what should be labeled as such is moving quickly. US financial regulators — seen as behind their European counterparts in ESG progress — are now hashing out the merits of creating one framework for the way companies disclose climate risk and other data.
True ESG investing is also debated because sustainability has varied definitions and allows for greenwashing — or mismarketing something as sustainable that isn’t.
Despite the lack of clarity, the market has ballooned in recent years, with global assets in sustainable funds near $2 trillion in the first quarter, according to Morningstar. Those funds drew $185 billion in net inflows during the quarter, a record for the fourth consecutive quarter.
Notably, Morningstar defines that universe by open-end and exchange-traded funds that claim to have a sustainability objective or use ESG criteria for their investment selection. That leaves out funds that only screen out for controversial sectors like thermal coal or weapons, showing the varied standards for gauging an investment’s sustainability.
That notion of staying away from an investment — a strategy where ESG has roots — is being requested less by clients, VanderBrug said.
“It is less now for our clients about avoidance, and more about, ‘How do I benefit, and increasingly, how do I contribute?” she said.
Though regulators and policymakers have not created a universal framework for companies’ ESG reporting, companies generally abide by standards set up by other bodies, like the Financial Stability Board’s Task Force on Climate-related Financial Disclosures.
“We think the movement to more transparency and more consistent and comparable data is really important,” VanderBrug said, adding that clients have generally shifted from asking why ESG is relevant to how the data is used.
It’s an existential question for capital allocation that regulators are pondering, too. SEC Commissioner Allison Herren Lee said in March that not all companies will disclose important data without mandating them to do so.
“Investors also aren’t getting the benefits of comparability that would come with standardization,” she said. “And there are real questions about reliability and level of assurance for the disclosures that do exist.”
SEC officials’ views are varied, with Commissioner Hester Peirce opposing such a universal framework. Since ESG factors are complex and constantly evolving, unlike financial accounting, a single set of standards would oversimplify a company’s sustainability measurements to the detriment of investors, she said last month.
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