Ask an Advisor: Advising couples with ESG investing when they disagree

Welcome back to “Ask an Advisor,”the advice column where real financial professionals answer questions from real people. The topic can be anything in the world of finance, from retirement to taxes to wealth management — or even advice on advising.

This week, our question for advisors is centered around what is known as environmental, social and governance (ESG) investing.

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What used to be known as socially responsible investing (SRI) has been rebranded in recent years as ESG investing. This has also opened the door to values-based investing (VBI), in which client’s deeply held spiritual beliefs are reflected in their portfolios.

In 2018, BlackRock CEO Larry Fink highlighted the importance of socially conscious investing in his annual letter to other CEOs.

“Society is demanding that companies, both public and private, serve a social purpose,” Fink wrote. “To prosper over time, every company must not only deliver financial performance but also show how it makes a positive contribution to society.”

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ESG investments became a political hot topic, with many investors pulling money out after right-wing politicians denounced the funds.

Prominent Republican politicians began railing against ESG, decrying it as “woke capitalism” that prioritized fuzzy ideals over profits.Former President Donald Trump called it “radical-left garbage.” In 2023, Florida Governor Ron DeSantis signed a law banning state officials from investing public funds based on ESG criteria.

Still, many ESG investments have remained highly profitable. Over the past decade, the top 20 sustainable funds have garnered an average yearly return of 13.57%, according to Morningstar Direct. In the past 12 months, their average gain was 18.29%.

But, what happens if the client couple you’re working with can’t even agree with each other about what ESG means to them and their portfolios?

Dear Advisors,

What challenges arise when clients are looking to exclude companies they don’t agree with from their portfolio?

How do you address issues with clients who have differing values and beliefs, and how does that change when a couple doesn’t align on those same values?

What strategies do you recommend for helping guide clients through investing both for financial goals and personal ones?

Kenneth Silva-Ballard
Investment AdvisorFirst Affirmative Financial NetworkColorado Springs, Colorado

In response, several advisors answered the call with their strategies for tackling this potentially sticky situation. Their advice included suggestions like developing relationships with both members of the couple to figure out what’s most important to them; helping clients define what their personal goals are before investing; looking for investments that both individuals agree should be in the portfolio or excluded; allowing clients to articulate what their…