The financial advice industry has been told to expect an increase in client demand for environmental, social and governance (ESG) investing, but a recent survey tells a different story.
Online investment platform Charles Stanley Direct surveyed just over 2,000 UK adults and found 60% of self-identified ‘DIY investors’ admit they are not aware of ESG or socially responsible investing (SRI).
Only 19% of UK adults said their awareness of SRI/ESG has increased over the last 12 months
However, almost half of investors (48%) expect to increase their ESG investments over the next three years, with 17% planning to do so “significantly”.
In the dark
“While ESG funds are becoming more popular, we haven’t seen the tidal wave of support that many investment companies are predicting,” said Patrick Connolly, head of communications at IFA firm Chase De Vere.
“This is backed up by the research, where only a small number of people are looking to significantly increase their ESG exposure and many investors aren’t even aware of ESG.”
Commenting on the research, Sarah Waring, client and proposition director for Quilter Private Client Advisers, told International Adviser: “Despite all the industry and media talk on the importance and potential benefits of ESG investing, the message is clearly not getting through to everyday investors.
“They remain in the dark about the power of their financial decisions in mitigating the risks of climate change and contributing to a sustainable future.”
Recently, IA interviewed Colin Dyer, head of proposition and private client management at advice firm 1825, who said a lot of ESG products are “coming down the conveyor belt”.
So, why is ESG not currently an investing powerhouse in the retail space?
Patrick Thomas, head of ESG investing at Canaccord Genuity Wealth Management, said: “One of the biggest barriers is the terminology that’s used – there are more acronyms than you can shake a stick at, in ESG investing, and many are designed to confuse.”
Adam Smith, chief operating officer at IFA group Fairstone, said: “The detail behind the acronyms can be bewildering and complex, with no agreed format or framework to support direct investors.
“The advice market is starting to lead the way, not just by re-packaging existing solutions with new labels, but by developing genuine impact solutions which can meet a broad range of beliefs and deliver on performance.
“But these figures reinforce the value and importance of professional financial advice to achieve and maintain the right individual investment strategy.”
One way of getting the ESG message across is through financial advisers.
Easy and honest conversations with clients can help them understand the strategy.
Mark Sanderson, chief operating officer at platform Praemium, said: “A confusion of terminology, opacity as to the ethical credentials of an investment, and uncertainty as to how investments actually align with an investor’s ethical considerations are all contributors.
“Well-prepared and informed advisers can cut through the confusion and help clients invest in keeping with their ethics and for the good of the planet.
“With millennials set to be the recipients of the largest intergenerational wealth transfer in history, it’s also a real opportunity for advisers.”