An ESG investigation by Bloomberg Intelligence (BI) found that 85% of investors “reported that ESG leads to better returns, resilient portfolios and enhanced fundamental analysis.”
And yet, for many in the impact-investing sector, overcoming the question “Why are you better than the Big Finance firms I keep hearing about?”, remains one of the biggest challenges.
Well, that’s the question we will help you answer in this article. You can also check out these two:
💡5 Ways ESG-Driven Alternative Investment Firms & FinTechs Can Compete with Big Finance
💡The Role of Content in Ethical Finance
Current social and economic headwinds
The global economy has been shaken in recent months.
We don’t have to look far for the cause.
So, skipping over the political commentary, we’ve got to think about what this means for ESG investment firms, and maintaining growth in challenging times.
One of the challenges the ethical and impact-driven investment world faces is lower brand awareness than “Big Finance”.
Giants like BlackRock have high-performing ESG funds, making them one of the market leaders in this sector, according to Sustainability Magazine.
But smaller ESG specialists like Nordea, Parnassus, Federated Hermes, and Amundi also have exceptionally high quality investment opportunities on offer.
Effective storytelling can help ESG firms, particularly more niche and boutique companies, stand out and gain more traction against larger operations.
It’s not always easy to know what it even means to strengthen your storytelling brand awareness, let alone how to implement it. So here are some tips.
💡Storytelling action points:
Telling better stories starts with understanding the art of storytelling.
Let’s think about that for a moment.
Every story needs to include the following elements, and here is how we relate them to your ESG investment firm:
- Characters: In this case, the hero of your story is your customers and potential investors/clients. Make them the central characters of your storytelling/marketing.
- Setting: The setting is the economic climate and how that relates to impact investing.
- Theme: For ESG firms, the theme is your funds and the portfolio elements, like environmental impacts, or a reputation for strong, stable, transparent governance.
- Emotional Appeal: Use emotional appeals wherever appropriate for your audience. This isn’t just money and creating shareholder value; impact investing is making a positive difference.
- Resolution: Unlike a story, you don’t want your relationship with clients to end. However, there’s always a way to frame the narrative in financial terms by showing investors what each fund generated, year-on-year. In that sense, every fund vintage has a resolution.
- Audience Connection: A crucial part of every narrative is keeping the audience engaged. Keep them wanting more. Or in your case, keep investors happy, invest more, and tell others about your firm.
- Plot: Stories have a clear beginning, middle, and end, which keeps the audience engaged. Your storytelling could be structured around investor pain points (problems), the solution (investing with you), and outcomes (returns generated, positive impacts made).
Exploiting regional growth opportunities
The Trump administration’s hostility to anything climate-related is likely to dampen investor appetite for ESG products in America for the foreseeable future.
An ESG report by Bloomberg Intelligence (BI) supports this theory, with growth expected to concentrate on Europe, Japan, Canada, and Australia, away from the U.S.
💡Storytelling action point:
If you’re a firm in those regions, or you want to pull in new investors, it might be a smart move to focus your marketing efforts on regions and countries that are likely to be more receptive to your messaging.
The good news is that the BI report still expects a 3.5% growth rate for ESG finance in 2025.
However, since growth is likely to be subdued in America, it makes sense to concentrate where investors are more likely to take action.
“Investors are retreating to more traditional concepts of shareholder value creation.”
Investors put money into ESG funds for numerous reasons:
- Supporting ESG initiatives;
- De-risking portfolios;
- Reduced volatility;
- Reduced tail risks;
- Better alpha generation;
- Improved Sharpe ratio;
- Accessing new growth opportunities;
- Fund-specific reasons.
A recent Stanford Graduate School of Business survey found that investors are adjusting their reasons for investing in ESG and ethical funds.
Finance Professor, Amit Seru, a co-director of the Corporate Governance Research Initiative, and a senior fellow at the Hoover Institution was a part of that survey.
Seru says that: “It appears investors are retreating to more traditional concepts of shareholder value creation and relying less on the stakeholder concepts that have come to epitomize ESG.”
“Investors focusing on the one or two main drivers of risk that have the potential to really drive stock price and influence outcomes”, Seru said.
These two main drivers are reducing volatility and tail risks, rather than things like the specific carbon impact of a particular stock or fund.
Research is showing us that the storytelling emphasis is worth shifting onto fund performance, and how investing with you will help investors reduce volatility and tail risks.
Supporting that, a meta-analysis of 2200 research papers showed that returns from sustainable investing are 60% higher than traditional, unsustainable investments (Fried et al, ESG and financial performance, Journal of Sustainable Finance & Investment, 2015).
💡Storytelling action point:
An integral part of telling a more compelling story is to use any valuable statistics, figures, or case studies for any of the following points you can use to make your firm stand out:
- More stable returns
- Reduced volatility
- Reduced tail risks
- Better returns
- More resilient portfolios
- Risk-adjusted returns against economic headwinds.
Flipping the ESG narrative: “Governance, climate, and social.”
A recent survey by Stanford Graduate School of Business researchers, and the MSCI Sustainability Institute of 47 institutional investors with $250 billion AuM found that the main reason that investors put money into ESG funds is:
“Primarily as a way of reducing volatility and risk in their portfolios — especially tail risk, the probability that a rare but catastrophic event could tank a company’s performance.”
The same survey also found that most investors think that ESG should be changed to cover “governance, climate, and social.”
“More than two-thirds of all respondents put governance factors at the top of the list, with environmental factors coming next and social factors barely registering at all.”
Governance determines how well or not a company is managed, alongside the reputation this generates.
For investors, good governance is “table stakes”, and “If you’re a really bad actor, then it’s sort of over.”
The same goes for the environmental aspect of ESG. Data shows that primary concerns are around reducing a company’s carbon footprint:
“78% rank climate change or carbon emissions as the most important environmental factors they explicitly consider when making investment decisions; most say that they are analyzing the emissions associated with their investments, putting money into renewable energy and transition technologies, and quantifying the possible financial impacts of climate-related risk.”
💡Storytelling action point:
Imagine these ESG points in a Maslow’s hierarchy of needs pyramid. The data suggests ESG firms need to rethink the narrative of their messaging and storytelling to reflect:
- Corporate governance: Your company and the governance of every company in your portfolio funds;
- Environmental commitment and actions: Carbon cutters and Net-zero-focused businesses win more points than ever from investors;
- Social factors: Less fashionable than they have been in the past, so if you want to attract investors, you might want to experiment with making governance and environment more prominent in your marketing.
Demonstrate your financial ROI & environmental impacts
It’s not enough to tell potential investors that your fund is better for them and the planet; you’ve got to show them.
As numerous studies have shown, “Sustainable investments generate 60% higher returns than traditional, unsustainable investments.”
Sustainable investments have a higher aggregate ROI and return on capital for investors than funds that include oil, gas, weapons, and other harmful investments.
Demonstrating environmental impacts is important too. Don’t take your eye off that ball. But be mindful of what investors are looking for these days.
The same is true for good governance. As we mentioned earlier, good governance is ‘table stakes.’” Investors are no longer entertaining badly-managed organizations, or funds containing lots of bad actors.
In the ESG sector, that should be less of an issue, although it’s always worth doing due diligence on governance and environmental factors.
Whenever possible, watch out for claims of greenwashing. Unfortunately, not all of these claims are unfounded, and this is something investors are aware of and care about.
💡Storytelling action point:
If you can show the strength of your funds or your sector through a benchmark comparison ⏤ especially if it’s done independently ⏤it puts your firm in a really strong position.
The same applies to governance track records and transparency, and genuine positive environmental impacts and outcomes.
If your company, or companies in your funds, are as good as they claim, then getting the word out about this will be core to your future growth.
Make the case for ethical and ESG investing vs. Big Finance
In the grand scheme of global finance and assets under management, ESG and ethical firms are still somewhat niche.
The top 500 asset management firms hold $128 trillion in AuM in the US alone.
In comparison, “Global ESG assets surpassed $30 trillion in 2022 and are on track to surpass $40 trillion by 2030”, according to the latest ESG report from Bloomberg Intelligence (BI).
There are so many compelling reasons to invest in ESG funds.
But the case still needs to be made, and made louder and more consistently than many firms are currently doing.
We can help you with this.
💡Key Takeaways: It all comes down to better storytelling
You can think of the techniques for telling moving, memorable stories as a series of layers.
Each layer supports the next, and each speaks to a different need that potential investors have, including:
- Enhanced portfolio resilience;
- Reduced volatility;
- Reduced tail risks;
- Lower governance-based risks;
- Greater chances of higher returns compared to non-ethical funds;
- Greater opportunity for increased Sharpe ratios;
- ESG investments can help return a portfolio to investor fundamentals;
- And at the same time, this investment will make a positive impact on the planet.
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We want to support as many ESG, impact-driven, & ethical finance companies as we can.
We’d also love to collaborate with more VC firms that support women entrepreneurs, climate initiatives, CleanTech, and startups and scaleups in those spaces. So you can see what we can do, we are offering a free, no obligation marketing analysis and a bespoke sample of copy. Sounds interesting? Email us at: admin@fintechcontent.marketing and we will get started for you.