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Advice firms can now benefit from EQ Investors range of solutions being risk profiled on Dynamic Planner. EQ Investors (EQ) is an award-winning B Corp discretionary fund manager focused on sustainable and impact investing and has been running sustainable portfolios since 2012.

EQ offers two sustainable solutions for advisers: Positive Impact (active) and Future Leaders (passive) portfolios. Both are diversified, multi-asset portfolios. The EQ Positive Impact portfolios have a dual mandate: maximising risk-adjusted financial returns while making a positive social and environmental impact. The EQ Future Leaders portfolios use only low cost, passive funds that focus on ESG leaders with additional overweights in selected impact themes. Both solutions have been risk profiled in Dynamic Planner.

Yasmina Siadatan, Sales and Marketing Director at Dynamic Planner said:

“Having recently launched our sustainable investing solution we are focussed on ensuring advice firms have the very latest in understanding the sustainability of both people and portfolios. That also entails partnering with asset managers committed to providing sustainable solutions for the growing demand from investors.

“I’m delighted to welcome our very first B Corp to the risk profiling service, EQ Investors, who have opted to behave as an organisation responsible to both the investment returns according to the level of risk taken, alongside having a positive impact on the environment and society, with both a passive and an active range. Suitability and sustainability are becoming hand in hand, and we feel proud to be part of the jigsaw of positive change.”

Damien Lardoux, Head of Impact Investing at, EQ Investors added:

“Risk-profiling tools have become an integral part of the advice process to ensure investment plans are best suited for each client’s unique goals and circumstances. As we expand our sustainable model & bespoke portfolio service, we are keen to integrate with strategic partners to enhance our offering to advisers, Dynamic Planner is the perfect fit.”

The EQ portfolios now available risk profiled on Dynamic Planner are:

About EQ Investors
EQ Investors (EQ) is an award-winning, wealth manager providing financial advice and investment management services to individuals, small businesses and charitable endowments. EQ is a Certified B Corporation, an internationally recognised standard for companies that believe in business as a force for good. Making a positive contribution to the wider community is a core part of its business philosophy. EQ operates a matched giving programme to help its clients and staff raise extra funds for their favourite causes and has set up The EQ Foundation as a registered charity.

By Louis Williams, Head of Psychology & Behavioural Insights

Advice firms aim to optimise their clients’ investment returns. But the potential impact sustainable investing can have can be misjudged, alongside the importance clients place on returns and their sustainability preferences.

As sustainable investing, as a subject, considers managing risk, doing well by doing good, reduced financial opportunities, potential for lower returns, and emotional and ethical motivations, conversations pivot on a clear understanding of someone’s goals.

Designing a measure to effectively understand clients’ sustainability preferences, covering such a broad acknowledged area is therefore crucial.

How are a client’s sustainability preferences currently captured?

To date, emphasis has been placed on understanding the impact companies have concerning environmental, social and governance [ESG] issues. However, few advances have been made to create a true process where a client’s sustainability preferences are accurately captured.

Multiple choice questions, using mock scenarios, are one path being explored, allowing a client to select preferred investments after being provided with information about their sustainability and returns. There are advantages to this approach as it removes a very direct line of questioning which can potentially invite a respondent’s biases into the equation. However, such an approach also has disadvantages.

First, hypothetical scenarios are not indicative of decisions made in reality. Second, the fund universe and dynamics within an investment portfolio reach far beyond what can be encompassed by a simple multiple-choice task.

Third, it is incorrect arguably to situate ‘sustainability’ at one end of a spectrum and ‘investment returns’ at the other, when sustainable investments can generate greater returns.

Fourth, multiple choice questions and mock scenarios demand a client has prior financial and mathematical knowledge, which they may not. Finally, fifth, a client’s responses may be distorted in a mock scenario – for instance – involving a company they have a view on.

Why adopt a psychometric questionnaire here?

It is not useful to view sustainable investing as simply a box ticking exercise. Nor is it helpful to overwhelm a client with information available.

To understand a client’s preferences the key is real engagement, so their preferences can be captured and also the implications of their choices can be discussed. Sustainable investing preferences, as we have noted, can be complex, encompassing a broad church of relevant factors. Therefore, a suitable step in your firm’s process is required to serve as a trusted foundation for a conversation with a client.

Psychometrics combines thinking from the schools of psychology and statistics. A psychometric questionnaire therefore is created to cut through the noise of, as we have noted, direct questioning to effectively understand how someone might feel and act both in the short and long-term.

While there is no history or track record of psychometric ESG questionnaires, at Dynamic Planner, we are fortunate that our team have the experience of successfully creating the most popular and most proven risk profiling questionnaire in the UK, supporting more than one million clients of advice firms since 2013.

At the beginning of 2018, we launched in Dynamic Planner a new psychometric attitude to risk questionnaire, which again has proved hugely popular with advice firms and, in the last 12 months, during the Covid-19 crisis, has stood up robustly when continuing to measure a client’s attitudes to investment risk.

We have followed a similar formula now to build and release a psychometric questionnaire to capture a client’s sustainable investing preferences, ensuring it is reliable, valid and that it measures what it intends to.

How did we build our sustainability questionnaire?

There are a number of key things to consider when designing a psychometric questionnaire. They are:

  1. Avoid complex terminology or jargon
  2. No financial knowledge needed for completion
  3. Avoid repetition or redundant questions
  4. Capture multiple dimensions of what is being measured
  5. Avoid double-barrelled or ambiguous questions
  6. Employ an appropriate number of questions
  7. Choose an appropriate question order

That all said, even when questions are clear and well supported by academic thinking, a questionnaire can still fail to capture what it intends to. Clear, statistical steps must be taken to validate a questionnaire.

At Dynamic Planner, we tested our psychometric sustainability questionnaire on more than 1,000 UK investors, alongside taking significant steps before reaching a robust, final version. We also consulted with focus groups of advisers.

What does our questionnaire measure?

#1 Psychological distance
People are more likely to take greater risk regarding decisions which impact far in the future. If we consider the example of climate change, acting now may feel unattractive given that the promise of reward appears distant and uncertain.
An individual may acknowledge the importance of sustainable investing, but when considering benefits are largely for future generations, this can impact their decision in the short-term. Psychological distance measures this balance.

#2 Personal values
It can be assumed that a client’s sole desire is to maximise their wealth. However, they can also be motivated to promote social change, consistent with personal values and therefore be willing to accept lower returns.
It is important to understand an individual’s views on controversial or unsustainable areas of investment and how far their portfolio should reflect their values and beliefs.

#3 Emotional benefit
It is important to measure the emotional benefits of investing. People can benefit emotionally when they believe they have acted responsibly through their investments and can feel compensated if they receive lower returns, as a result.
Emotions are important when making financial decisions and taking risk. People who are positive can be more risk seeking, while decisions around sustainable investing can, as we have noted, evoke positive emotions. It is therefore important to understand a client’s positive or negative emotions towards how companies manage ESG risks.

#4 Positive impact
We know a proportion of investors express a desire to do good with their investments, producing social and / or environmental benefits. This extends beyond a company simply monitoring or managing ESG risks. Such individuals are socially motivated.
They may be prepared to accept lower returns in order to achieve their goals, whether it is their own investments directly having a positive impact, or whether they are contributing more broadly to change in investing. It is important to identify how a client seeks to actively engage with companies to generate positive and measurable social and environmental impact, alongside financial returns.

#5 Financial considerations
Although investors may display preferences for sustainable investing, there are trade-offs that they should be aware of. Studies have shown that ESG investments can produce at least competitive returns. Nevertheless, it is important to understand how a client prioritises investment opportunities and financial returns in relation to sustainability preferences.

How can Dynamic Planner help your firm regarding sustainable investing? Find out at one of three webinars from 8-10 June

Dynamic Planner is set to launch the industry’s first psychometric Sustainable Investing questionnaire. Launching on 7th May to all advice firms and clients using Dynamic Planner, the ESG investing questionnaire provides a simple, yet academically robust solution to the challenges advisers face when talking to their clients about environmental, social and governance (ESG) factors and sustainability.

The development of the questionnaire has been led by Louis Williams PhD FHEA, Dynamic Planner’s Head of Psychology and Behavioural Insights. It has been designed in consultation with focus groups of advisers and tested by 1000 investors. Its key aim is to provide advisers with a robust and repeatable process to hold sustainability discussions with clients, by accurately capturing an individual’s ESG preferences.

Louis Williams, Head of Psychology and Behavioural Insights at Dynamic Planner said:

“Sustainable investing is not a straightforward tick box exercise. Preferences can be complex, encompassing an incredibly broad range of factors. Expectations of the impact it can have can be misjudged, along with the importance and balance clients place on potential returns and their sustainability preferences. The key to fully understanding the ESG and sustainability hopes and expectations of a client is real engagement, so that their preferences can be accurately captured and the implications of their choices discussed.

“Until now, emphasis has been placed on understanding the impact companies have concerning ESG but few advances have been made to create a process which truly helps clients to understand the whole picture. Bringing together psychology and statistics in the form of our Sustainable Investing questionnaire enables us to help advisers cut through the noise and really understand how someone might feel and act both in the short and long-term. Successful investment and sustainability conversations pivot on a clear understanding of someone’s goals.”

The Sustainability Investing questionnaire will be used alongside Dynamic Planner’s Sustainable Investing insight, launched in February. It has been designed with the client in mind, to avoid jargon and complex terminology; no financial knowledge is needed to answer questions; it employs an appropriate number of questions in an appropriate order; all of this based on feedback and insight provided through testing and consultation with investors and advisers.

Ben Goss, CEO at Dynamic Planner said:

“Our psychometric Sustainable Investing questionnaire is an industry first, built on a combination of the robust academic thinking of schools of psychology and statistics. And importantly, in tandem with investors and advisers.

“Our team has the experience of successfully creating a risk profiling questionnaire that has supported more than one million clients of advice firms since 2013. What we are launching now is built on a similar formula, to capture a client’s sustainable investing preferences – an extension of our suitability process with the extra ‘s’ of sustainability.

“Combined with our Sustainable Investing insight launched earlier this year, we will be able to help advice firms deliver more deeply valuable and bespoke financial plans in line with clients ESG preferences.”

The Dynamic Planner Sustainable Investing questionnaire measures:

  1. Psychological distance: People are more likely to take greater risk regarding decisions which impact far in the future. An individual may acknowledge the importance of sustainable investing, but when considering how future generations or people elsewhere may benefit, this can impact their decision in the short-term.
  2. Personal values: It can be assumed that a client’s sole desire is to maximise their wealth. However, they can also be motivated to promote social change, consistent with personal values and therefore be willing to accept lower returns.
  3. Emotional benefit: It is important to measure the emotional benefits of investing. People can benefit emotionally when they believe they have acted responsibly through their investments and can feel compensated even if they receive different risk/reward outcomes, as a result.
  4. Positive impact: We know a proportion of investors express a desire to do good with their investments, producing social and / or environmental benefits. This extends beyond a company simply monitoring or managing ESG risks. Such individuals are socially motivated. They may be prepared to accept lower returns in order to achieve their goals.
  5. Financial considerations: Although investors may display preferences for sustainable investing, there are trade-offs that they should be aware of. Studies have shown that ESG investments can produce at least competitive returns. Nevertheless, it is important to understand how a client prioritises investment opportunities and financial returns in relation to sustainability preferences.

Dynamic Planner Sustainable Investing insight and the newly launched questionnaire will enable advisers to respond to increasing demand to talk about sustainability, ensure their clients fully understand both the ESG and sustainability opportunities and risk that their investments present, as well as helping to support advisers in fully meeting the fast-evolving regulatory requirements.

Dynamic Planner is running three Sustainable Investing Webinars from 8th-10th June. Visit the training academy page to find out more.

Sustainability and its implications for risk and for the suitability of investment portfolios is now centre stage for all parties across financial services.

Environmental, social and governance factors potentially having a negative effect on the value of investments are all in the spotlight. For example, the instances of workforce standards in a company’s supply chain or business ethics are increasingly making headlines and as a result, pose material risk. There appears to be no hiding place.

Financial markets are further perturbed by transition risks tied to change in global sentiment, politics or labour policy, all of which can trigger a reassessment of an asset’s value. In the future, there are additional liability risks potentially, still to be quantified, as people impacted by climate or social change pursue compensation.

All the while, the speed of change increases as governments and investors accelerate plans to transition economies and companies toward more sustainable practices.

Rising tide, rising demand

Larry Fink’s letter to investors in January this year laid bare BlackRock’s commitment to supporting net zero greenhouse gas emissions, across its portfolio by 2050, founded on their opinion that there is now a fundamental reallocation of capital towards sustainable assets. Meantime, in 2020, we saw household names like Barclays unveil a net zero target for businesses it lends to, while similar pledges too have been made by HSBC and JP Morgan Chase, adding weight to the movement.

Against this backdrop, advice firms are increasingly talking about sustainability, its risks and opportunities, with their clients. A survey we carried out last year, revealed that 55% of advisers, more than half, discussed sustainability with clients during reviews and 83%, more than four in five, wanted more information on the sustainability of investment solutions.

Measuring ESG risk – What’s the problem?

That said, how is the industry currently measuring sustainability risk and opportunity; explaining it; and accounting for it in client portfolios and final recommendations? The short answer is there is no accepted or uniform answer yet. Why? Below are three key reasons:

  1. Lack of consistent, objective disclosure of a company’s activities in relation to ESG risks alongside the practice of ‘greenwashing’ – implying sustainable credentials for funds when the reality is different
  2. Externalities – the wider cost paid by the environment or society from a company’s activities are not simple to understand or measure
  3. Longer term, the scale, incidence and impact of potential risks are uncertain and difficult to factor in. Five years ago, then Bank of England Governor Mark Carney called this the ‘tragedy of the horizon’ as investors discounted very long-term risks

At the heart of these three issues is measurement and the need for consistent, objective assessment here. Regulators around the world are driving this agenda. From next month [10 March], EU Regulation on sustainability-related disclosures in financial services [Disclosure Regulation or SFDR] must be implemented.

UK managers distributing in the EU are already preparing for this. The UK regulator has commented they are ‘working closely with the Government and other regulators on how to implement the EU’s proposals in the UK’. Already this year, new regulations in line with the Task Force on Climate Related Disclosure, a global initiative mandated by the G20’s Financial Stability Board, demand stricter disclosures from listed companies in the UK.

As better data becomes available as a result, so fund analysis around the risks and opportunities here will improve.

Going beyond manager questionnaires and self-descriptions is important in order to create more universal models founded on publicly available information, accurately capturing historic patterns and allowing for forward-looking risk assessment without an absolute reliance on opinion. In this way, we will match the way those models take a view on risk.

ESG research available to you today

At Dynamic Planner, we have long considered a wide range of risk factors of each individual holding, when assessing the overall risk of investments. In that light, our own approach here has been to incorporate similar, whole of market ESG data from MSCI, a world leader in gathering sustainability information from public sources.

We this year made this research available to advice firms, to inform objective conversations with clients and enable them to compare investments fairly like for like. Over time, we are interested in understanding what does or does not pose risk for investments, in particular against its risk profile peer group, as we do today with liquidity and credit risk, for example.

Without doubt, we are only part way along the ESG assessment journey. From an adviser’s standpoint, the key is to adopt tools and data available today and to not let ‘perfect’ be the enemy of ‘good’ in terms of having a meaningful discussion with a client. As measurement of sustainability improves, the market will become more accurate in its risk assessments.

Read more about sustainable investing research, available today in Dynamic Planner.

What is driving growth today in sustainable investing? How can advice firms demonstrate value to their clients here? And what is making some advisers wary of talking about sustainable investing or ESG? Naomi English, Head of ESG Product Strategy at global giant MSCI, delivered a timely keynote at the 2021 Dynamic Planner Conference, answering those questions, among others. Below, are highlights of what she discussed alongside a video recording of her March talk in full. You can catch up on the full recording here.

What has driven growth in sustainable investing?

Over the past decade, we have seen tremendous growth in ESG investing globally, with an even greater acceleration last year in 2020. Growth was particularly pronounced in Europe and there are many reasons behind that. I would like to focus on two.

First, there is a better understanding today of the relationship between ESG and financial performance. We have seen that companies with high ESG ratings have been more profitable and paid higher dividends to shareholders, and that portfolios which have integrated ESG considerations have demonstrated more resilience than portfolios which have not.

On top of that, hundreds of different academic and practitioner studies have looked at the relationship between ESG and financial performance, allowing us to confidently say that the myth that incorporating ESG into your investments will hurt performance is simply that, a myth.

Second, investors are more aware of events today and less tolerant of corporate ESG incidents. More than 30 years ago, the share price of Exxon barely moved in the wake of the 1989 Exxon Valdez oil disaster. Today, there are example after example of companies, which have faced serious financial repercussions following corporate ESG incidents. Companies cannot get away with it today. There is a financial price to pay.

How can advisers demonstrate value to their clients?

It’s not only institutional investors who are changing, but individual investors too. According to studies, 84% of millennial investors are interested in sustainable investing, alongside 71% of overall individual investors today.

Naturally, those investors are looking to financial advisers to see how they can help them invest in alignment with their values. ESG investing insight is insight clients want and by providing it, advisers can demonstrate their value. They can further do this by strengthening clients’ portfolios by incorporating ESG; they can align portfolios to their clients’ values; and they can enhance their annual client review process, by providing meaningful insight here.

Some advisers may say, ‘Oh, only a small number of my clients ask about ESG’, but equally in that regard advisers are not waiting for their clients to ask them about increasing exposure to China in their portfolio, for example. Ultimately, investors look to their advisers to advise them and help them navigate global trends and risk.

Why are some advisers wary of discussing ESG?

First, they may be uncomfortable talking about it because they feel they lack the expertise. Second, there is existing confusion about ESG investing and whether it can really reflect a client’s values or an investment strategy.

ESG does mean very different things to different people. There is no one size fits all. For example, let’s say 50% of a company’s power use is generated by nuclear power. That could be a positive or a negative for a client, so it is very important for an adviser to understand their clients’ individual objectives, in respect of aligning personal political and ethical values with their portfolio and to understand their investment objectives.

A client may wish to align their portfolio with ESG preferences somewhat irrespective of performance. They may wish to see measurable environmental and social returns – sustainable investment impact – alongside financial returns. Those are individual objectives. When we turn to look at investment objectives, we are looking at the integration of ESG into portfolios to enhance long-term returns.

The methodology behind MSCI’s ESG research

The MSCI ESG research ratings go from a AAA, a leader, to CCC, a laggard. And not all issues are relevant for all industries. At MSCI, we use quantitative metrics to determine which are most relevant for an industry.

MSCI was the first ESG provider to assess companies based on the idea of ‘industry financial materiality’, which is really core to our approach. We have identified 35 potential ESG issues across all industry, but for each industry we only select between four to seven of them and we dive deep on those issues and give each an appropriate weight before reaching an overall rating.

Our analysis does not only look at the past but is forward-looking as well. It does not rely purely upon company disclosure, thus allowing our ratings to measure possible risks not captured by traditional financial analysis.

In Dynamic Planner, you can view and download PDF reports of analysis of funds, containing lots of information and allowing you to dive in and evaluate funds in respect of values alignment, sustainable impact and risk exposure.

What makes MSCI’s ESG ratings unique?

  1. MSCI is a pioneer here with the deepest ESG history.
  2. The MSCI ratings have been used by more studies than any other.
  3. The ratings have recently been found to best predict ESG news on material ESG issues and future stock returns.
  4. The ratings were the first to adopt a forward-looking financial materiality approach and have continued to innovate and refine their approach over the last decade.
  5. They don’t rely purely upon company disclosure, with 45% of data used being alternative data.
  6. Ratings use a common language to assess ESG performance and are transparent, helping set industry standards.

Learn more about MSCI sustainable investing research in Dynamic Planner.

Here at Dynamic Planner, we were racking our brains thinking about what we could brand and give away to delegates at upcoming events this year. Should we follow suit with what other organisations classically give away? Should we try and be different? Nothing felt quite right.

Then we thought, ‘Why don’t we do what does feel right – and in a way the thousands of members and users within the Dynamic Planner community can genuinely get behind? Give back. So rather than commission a corporate mug or notebook this season, we decided to donate the budget we had set aside to Trees for Life, a conservation charity we’ve closely supported since November 2016.

As a company, we’re committed to reducing the amount of paper used within our industry and replacing it with tech. Planting more trees is all part of that mission. The money we are donating adds to the 70+ saplings Trees for Life plant on our behalf every quarter – one for every member of the Dynamic Planner Team we have carefully built since 2003 – and to the near two-million trees, Trees for Life has planted in the Scottish Highlands since its foundation in 1993.

“It means a lot to us to have ongoing support from an organisation like Dynamic Planner,” said Karen Mitchell, Trees for Life Relationships Manager. “I personally love it when we hear from a business that wants to make a donation. It gives us that sense that we’re not in this alone.”

 

Trees For Life Volunteer

Trees for Life’s vision and mission is to conscientiously make its small corner of the world better. Better and richer for all of us. It wants to protect and reintroduce the ancient Caledonian Forest to the Scottish Highlands – magnificent Scots pine trees dating back 250-300 years.

Our vision statement at Dynamic Planner is, ‘Customers achieving their goals through suitable investments and advice for all’. We want financial services to be affordable and accessible to everyone, not just a privileged few. We all work hard for our money to provide the best possible life for ourselves and for loved ones. It is only natural to want that money to work as hard as possible for us in return. Suitable investments and advice helps make that possible.

In May 2019, at Dynamic Planner, we were delighted to receive the Payroll Giving Platinum Award 2019, ‘in recognition of an organisation’s commitment in fostering a culture of committed giving in the workplace’.

Karen, at Trees for Life, continued: “It’s really great when an organisation wants to give back to the natural environment which connects all of us. Someone on the street might ask, ‘Why are trees relevant to me?’ Well, they produce oxygen which keeps us alive for starters.”

A much better investment of that corporate giveaway budget, we hope you agree.