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Adviser case study 1: The ‘E’ in ESG
Case study 1: The ‘E’ in ESG
The horrific bushfire season in southeast Australia has pushed environmental and climate change concerns to the top of the list for new and existing clients for financial planner Dave Rae.
The Canberra-based Rae, owner of Federated Financial Services, has been a financial planner for two decades, and has increasingly integrated ESG analysis into his practice. He is a member of the Ethical Advisers’ Co-op as well as the RRIAA.
“Certainly this year so far, the E is top of mind, because no question, the bushfire season has prompted a lot of conversations, and with it that closer link and higher level acceptance that climate change is contributing to this,” he said.
Rae advises clients on managed funds and exchange traded funds (ETFs), and establishes clients’ environmental, social and corporate governance positions using a template of questions from RIAA.
“I’ll bring that out at every meeting I have with new clients and when I review with existing clients as well, so I can understand what their particular issues that there are, both the negatives issue they want to avoid and the positive ones like renewable energy that they want to support with their money.”
For clients that want ESG-based investments, he has developed two model portfolios loosely called light green and deep green to reflect their stances.
Case study 1: The ‘E’ in ESG
Dave Rae owner, Federated Financial Services
The client’s expressed preference guides him to make recommendations to one of the two model portfolios, but Rae notes that while the availability of ESG and sustainability-based products has grown in the last 12 months, there are still challenges. There is a need for increased reporting of ESG characteristics of funds, particularly around the ratings put forward by major providers, Rae said.
Rae currently has around 70 clients, and clients have evolved on their considerations of environmental issues.
“This is something that I’ve been progressively discussing with clients in the last three years,” he said. “Some have indicated that they have no preference for these issues, and to date have remained in index portfolios. But certainly in the last 12 months, the level of interest has increased where about 50% of clients now are progressing in a more sustainable portfolio.”
Given the attention that ASIC, APRA and the RBA have given to the investment risks associated with climate change, Rae is giving consideration to whether all portfolios for his clients should incorporate ESG and climate change.
