Please Note: OpenInvest was acquired by J.P. Morgan on August 5, 2021. Articles and insights posted before this date, only reflect views, information, services as of the date indicated. Information should not be fully relied on as current/accurate information and is subject to change without notice.

Debunking ESG Myths Part 3: Understanding the Back-Office Operations of ESG Investing

Published on

May 5, 2021

In part three of this three-part blog series, learn more about how exactly ESG works and how to show its value to your clients today.

In part 1 of our 3-part debunking ESG myths blog series, we debunked the myth that investors need to sacrifice financial portfolio performance with ESG investing. In part 2, we analyzed the future of ESG investing, proving that ESG is here to stay and your clients — not just millennials and women — want to learn more. 

In part 3 we break down the “how” of ESG investing, demonstrating that it doesn’t have to be complicated. There is a way to prove the value and impact of your client’s ESG investments. Learn more and start the conversation today with your clients

Part 3: Understanding the Back-Office Operations of ESG Investing

  • Myth #7: There’s no place in my portfolio for ESG investments
  • Myth #8: ESG investing is too difficult
  • Myth #9: There are no standards for ESG reporting 
  • Myth #10: You can't effectively measure sustainability and impact

Myth #7: There’s no place in my portfolio for ESG investments

Fact: ESG does not exist in its own separate bucket or asset class. You do not need to separate ESG investing as its own section of your client’s portfolio. Rather, ESG investing is a way of viewing, screening, and managing your investments that can be incorporated across your client’s portfolio. 

Client talking points:

According to The Forum for Sustainable and Responsible Investment (US SIF), SRI (socially responsible investing) “is an investment discipline that considers environmental, social, and corporate governance (ESG) criteria to generate long-term competitive financial returns and positive societal impact.” 

SRI usually involves either negative or positive screening to identify companies with better social, environmental, or governance track records. In other words, SRI is the same as traditional investing, focusing only on good or bad financial performance. ESG is one of many company performance indicators that investors can consider. The only difference is that with ESG, you’re weighing the good or bad guys with your personal values.

With OpenInvest, for example, we integrate with your existing architecture to deliver personalization, tax optimization, and tailored ESG factor tilts, all while maintaining firm-level discipline. Our software looks at funds, then buys the underlying securities directly. 

Let’s say you had a client who wanted to tailor their investments according to our Racial Justice cause. This means their portfolio would only include investments in companies who are transparent about their progress on diversity targets and divest from those that disproportionately pollute in communities of color. 

As the market, benchmark, ESG data, or advisor-client preferences change, the data consistently flows through portfolios, which then dynamically rebalances to keep client portfolios best in class while tracking your benchmarks. As you can see, there is no carving out a separate section of your portfolio to make room for “racial justice investments.” Instead, it is a core part of the investment strategy across your client’s entire portfolio. 

Myth #8: ESG investing is too difficult

Fact: Advances in cost structures and technology, such as OpenInvest’s Dynamic Custom Indexing (DCI), have made investing according to your values an accessible solution. 

Client talking points:

Your clients might be experiencing reluctance to invest according to their values because they believe that there might be more work involved in this decision than they are willing to commit to. After all, that’s why your clients hire you: to take the stress out of the investment process. However, investing according to your values today does not need to be a headache or costly manual customization for your clients or you. 

Advances in cost structures, technology, and increasing consumer demand have made portfolio customizations through direct indexing a more attractive and accessible solution. Developments, such as OpenInvest’s Dynamic Custom Indexing (DCI), make direct indexing fully automated by managing the scale, speed, and complexity of thousands of concurrent customizations at the individual security level. 

These can easily be adjusted and personalized on the front-end by the financial advisor, allowing for clients to interact with the software and leverage its capabilities. This automation removes the manual labor involved in replicating an ETF and replacing individual stocks. This enables you to create custom-built portfolios for each of your clients. 

When you can pull out a tablet live in a client meeting, tailor a personalized portfolio based on their values, and launch custom models on the fly, this helps dissolve the myth that ESG investing is far too difficult. Don’t just tell your clients that investing according to their values is possible — show them. Put the decisions in their hands and show how easy it can be to make their portfolios align with their goals, values, and interests. 

Myth #9: There are no standards for ESG reporting

Fact: While there is no single standard for ESG reporting, this does not mean that you can’t track the tangible impact of your client’s portfolios. You have access to the data you need today to tell a relatable and credible story for your clients.

Client talking points:

While organizations like Morningstar, MSCI, Sustainalytics, and US SIF among others, have attempted to establish a comprehensive ESG rating system, there are still wide levels of variance and contradiction between these providers and their company scores. This means that there is no one standard for measuring ESG. Yet, the myth here is that this is a limitation for you as the advisor or a reason to hold off on offering ESG investing to your clients. 

If you are waiting for ESG data convergence, you will be waiting for a very long time. ESG data is trending towards diffusion, not convergence. Those who seek convergence are looking at it the wrong way. After all, for your clients, it’s not about whether this company’s MSCI ranking went from CCC to BB. Not only do your clients not know what those letters mean, but they also don’t care. 

What your clients want is to understand their personal impact in relatable and tangible terms. They want credible storytelling. How many trees did my portfolio save this quarter? How much money towards vaccine development did I invest? How many women leaders did I support with my investments? 

None of this is in the current ESG data reporting. Rather, it results from re-bucketing all that ESG data, multiplying it out by the client’s portfolio holdings, and then providing an engaging interface and experience around it.

As a financial advisor, you have a choice to get lost in the details of divergent ESG datasets built for portfolio managers or bypass these debates and focus on what your clients want...which is not endless streams of data or confusing CCC or BB ranking systems. While the underlying ESG data is important and should be credible, the real focus should be on the outcomes your clients are looking for.

With tools like OpenInvest’s Portfolio Diagnosis (PD), you can ingest all that data, process it appropriately, and then generate something significant, meaningful, and engaging for your clients.

Myth #10: You can't effectively measure sustainability and impact

Fact: Every company has an impact, and we have methods of measuring that impact today. This data will only continue to improve as we see continued demand for ESG investing and transparent impact reporting.

Client talking points:

Just because the measurements for environmental, social, and governance impact data aren’t perfect doesn’t mean that we shouldn’t or can’t measure and report on the outcomes that we do have today. 

Organizations like The Sustainability Accounting Standards Board (SASB) are helping to move the dial on sustainability metrics and reporting. SASB, an independent nonprofit organization, has put in place standards and reporting guidelines that we can measure companies against to help improve the transparency around sustainability impact reporting. 

Organizations like the UN Sustainable Development Goals (SDGs) also provide a framework for measuring sustainability impact. Does a company help achieve the UN SDGs or does it pose a risk to those SDGs? These are some ways we can begin to measure a company’s overall impact. 

Today, many companies are sharing metrics like diversity statistics, wage gaps, greenhouse gas emissions, water use, coal and petroleum use, and veteran employment, among other data points. Some are easier to track, such as women in leadership, whereas others are far more complicated, such as understanding a company’s total impact on racial inequality. 

We still have work to do when it comes to transparency in that data and measuring all the outcomes we need to understand a company’s overall ESG risks. However, we have come a long way. After all, as demand for ESG increases, so does the pressure we put on businesses to report out their ESG risks. Back in 2011, only 20% of the S&P 500 Index produced sustainability reporting. In 2020, this number increased to 90%.

Every single business has an impact on the world. Measuring impact can be complicated, but it is possible. While we still have a long way to go, we have systems and organizations in place today committed to reporting out that impact. As demand for ESG continues, so will the efforts of quantifying that impact.


Your clients might not be shifting all their assets today, but they are looking to you as the advisor for guidance on ESG. You can make it easy for them to understand, and build this into their current portfolio. Although you might not see the action today, there is increasing investor demand and interest in ESG investing. Where there is interest, there is opportunity. As an advisor, you are well-positioned to shift that interest into action — and see the results for your business.

To get them to that point of action, it’s first important to understand the myths that might be holding them — or you — back and take the time to start this conversation with your clients. Having a conversation about ESG investing allows you to show the value of your business’ personalized service and attention while driving client satisfaction and retention in the process. 

Check out part 1 and part 2 for more ESG myths and facts and start the conversation about ESG with your clients today. 

Investment in securities involves the risk of loss. Past performance is no guarantee of future returns. One cannot invest directly in an Index. Any opinions, estimates and forecasts offered in this document constitute judgment as of the date of the materials and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information contained in this document to be reliable but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only and it is not intended to provide and should not be relied on for investment, accounting, legal or tax advice. OpenInvest may not have verified (and disclaims any obligation to verify) the accuracy or completeness of any information herein that has been provided or obtained by third parties.

Want articles and insights straight to your inbox?

Sign up for our newsletter below.