Two-thirds of financial advisers are investing more of their clients’ money in dedicated ESG fund propositions compared to this time last year, according to research from FE fundinfo.
The 2021 Financial Adviser Survey found that just 1% are choosing to invest less in ESG options.
And the driving force behind the change seems to be coming from the clients.
Last year, interest in ESG strategies came from a combination of investor demand and institutional sales pressure.
This year, however, 73% of advisers report that their clients are more interested in ESG investing compared with 2020.
And the rising demand shows little indication of slowing, with 76% of advisers believing that their clients will have more than a quarter of their portfolios invested in environmental, social and governance strategies within the next five years.
Huge potential
Oliver Oehri, co-head of FE fundinfo’s ESG Group, described the interest and inflow of assets into ESG as “truly staggering”.
“We are now seeing a rapidly maturing market attracting a new and diverse range of ethically-minded investors who are as conscious of the impacts of their investments as the returns they generate.
“This is an exciting opportunity for financial advisers, who as the FE fundinfo Financial Adviser survey shows, are taking proactive steps with their own investment propositions to capitalise on this surge in interest.
“Most encouragingly, advisers are viewing ESG investing as a long-term trend and are preparing themselves accordingly. With greater data provisions and clearer ratings systems in the market, the potential for further growth in the years to come is huge.”
Barriers to entry
The success of the past year doesn’t mean that there is not still room for improvement.
The research suggests uptake over the past year might have been even higher had there been agreements at policy level for advisers to understand and work towards.
Advisers were asked to name the three biggest barriers preventing them from promoting ESG investing to their clients:
- 62% said the lack of a clear set of standards and definitions was the biggest issue,
- followed by a lack of readily available data solutions (52%) ,
- and the potential for ‘greenwashing’ (52%).
This lack of a single set of standards, taxonomy and data in the ESG space, as well as the fact ESG is still seen as a developing area of the market, has led to many advisers adopting different approaches in terms of the due diligence they carry out on ESG funds.
A majority (62%) of respondents said they use screening tools on investment planners, while slightly more than half said they review an individual fund’s documents.
Nearly a third (29%), meanwhile, said they review a fund’s holdings at base level.
Subjective decisions
Rob Gleeson, chief investments officer at FE Investments, said: “‘ESG’ as a term on its own is not particularly helpful for either advisers or clients.
“It has broadly been spoken about from an institutional point of view as a catch-all solution to a complex problem. Retail investors and adviser clients don’t tend to think along the lines of whether their portfolios are ‘ESG portfolios’, but rather that their investments are not doing any harm and that they align with their own values.
“These are subjective decisions which advisers will have to get to the heart of and they will need to understand the range of suitable services within the market to meet their clients’ needs.”
Editor’s Note: In association with our sister publications, International Adviser has launched a Campaign for Better Governance.
It will see us shine a spotlight on investment companies as well as the businesses in which they invest.
