The investment world has consistently said over the last few years that environmental, social and governance (ESG) is the future of the industry.
From its relatively niche, institutional beginnings it is starting to reach a wider audience.
The United Nations’ COP26 conference and figures like Greta Thunberg have played a big part in helping to push ESG up the global agenda.
But recent data shows that progress has been slow in making ESG a mainstream investment strategy.
In October, a Foresight Group survey found only 12% of UK advisers said that over half of their clients now express a preference for ESG investing.
During our International Adviser Future Advisory Forum in Dubai, we asked UAE financial advisers to respond to the following statement: ‘ESG is important to my clients’.
• Absolutely – 26%
• Somewhat – 43%
• Not really – 29%
• Definitely not – 3%
You can argue over 60% of advisers said they clients were positive about ESG – or you can argue that only 26% of advisers had clients that want a full ESG strategy.
Warranted
IA spoke to RL360, Brooks Macdonald International, LGT Vestra, Continental Group and Praemium to discuss whether there is enough ESG demand in the UAE to warrant a mass supply of funds in the region.
Chris Corkish, RL360 investment marketing manager, said: “Whilst product providers are responsive to market demand, in the case of ESG we have decided to proactively provide credible options as part of an overall ESG strategy that seeks to develop understanding and sophistication in this area for clients and advisers alike.
“We believe that ESG will inevitably become a fundamental part of investment selection globally and have sought to lay the groundwork for these changes amongst those who purchase our products. This also enables us to contribute in the ‘greening’ of finance by facilitating sustainable investment.”
But Matt Wintour, head of adviser solutions at Brooks Macdonald International, sees the ESG demand/supply discrepancy ending soon, as change is on the horizon.
“We believe that retail investor demand in the UAE will increase over time as we are seeing happen in Europe. Individuals are becoming better informed on the global sustainability agenda as its profile in the global media increases. The tone of the global conversation has also shifted over recent times as the impending risks to our planet, society and economy are recognised rather than them being framed as problems for future generations.
“This is coupled with a growing understanding of the role that finance and the investment industry have in helping address these global challenges. Finally, as discussed above given the pace of change in global policy and societal attitudes the old perception that you would have to give up investment performance is being flipped on its head.”
Education, knowledge or lack of interest?
Whatever you may think of ESG, the investment sector is adamant that it will be a big part of the future.
Firms, such as Royal London and Square Mile, have even started to team up to educate advisers on how to talk about ESG to clients.
Which begs the question, is the demand issue in the UAE due to advisers being apprehensive speaking to clients about ESG rather than a lack of client interest?
Neelam Verma, vice president of investments at Continental Group, said: “It would be myopic to dismiss the currently moderate uptake as being due to a lack of knowledge among advisers, or their clients. The UAE is leading the region in adopting an ESG investment focus.
“While there is no governance body or law to enforce the ESG norms, the uptake we have seen in the UAE is purely discretionary by the early adopters with many more following the suite.
“UAE investors and their financial advisers tend to be very savvy about their options and have been very proactive in adapting, however the initial uptake in ESG investing has been straddled by early presumptions that an ESG strategy resulted in somewhat lower returns compared to other available options.”
Phoebe Stone, head of sustainable investing at LGT Vestra. said: “Everyone is on a journey. We have had demand for education sessions from IFAs in the UAE, and have had a very good response rate to sustainable education sessions we have run. We have also seen clients asking their IFAs about it in the UAE.”
RL360’s Corkish added: “ESG is a difficult topic in some ways at present, as asset managers are increasingly keen to push their sustainable prowess and it can be tricky to understand the various overlapping voluntary and regulatory disclosure regimes.
“A key part of consolidating ESG in the mainstream is standardisation, which enables investors and advisers to better understand the strengths and weaknesses of asset managers’ approach to ESG. This also needs to work hand-in-hand with education.”
Future
Whether ESG becomes the central investment strategy of the UAE is mainly down to client uptake.
Demand is rising – there is no denying that – but it isn’t hitting the heights that some firms are suggesting.
Verma said: “The launch of ESG products can be seen in the context of firms ensuring that they get in early, on an emerging trend. The vast majority of retail investors tend to be conservative in their investment decisions.”
Stone said: “ESG is becoming more mainstream. This is not unique to the UK and Europe and we would expect similar trends in UAE. There is a general shift in sentiment amongst regional leaders and businesses to sustainability, and this is being reflected accordingly in the investment world.”
Mark Sanderson, managing director of UK and international at Praemium, added: “The UK and EU regulators have ESG and advice firmly in their sights already – Europe’s Sustainable Finance Disclosure Regulation came into force at the start of 2021 and the Financial Conduct Authority (FCA) will introduce its own sustainability disclosure requirements for firms in due course.
“The dual forces of increasing investor awareness and regulatory scrutiny will ensure the market for ESG products and advice has a long way to go yet before it peaks.”
