The vast majority (86%) of UK financial advisers are factoring sustainability criteria in their suitability assessments, according to research by Abrdn.
More than half of advisers (55%) have used ESG principles in their assessment for over a year, while 45% started doing so within the past 12 months.
Of those that have not yet started to include sustainability preferences in their assessments, 37% intend to in the next year.
But there seems to be a lack of demand for implementing ESG criteria.
Abrdn found that 24% of advisers reported their clients have not asked them to incorporate ESG preferences in their portfolios in the past year.
Two-fifths of those polled (39%) said that only 1-10% of their clients asked them to add sustainability preferences to their investments.
‘Taking it seriously’
According to the investment firm, most advisers (63%) have no fixed definition of ESG when it comes to selecting funds; while 51% of those who do came up with it themselves.
Inconsistent guidance on what actually constitutes ESG investing is creating a “barrier” for advisers to adopt their own definitions, claimed 37% of respondents who did not have one in place.
Steve Owen, solution delivery director at Abrdn, said: “These findings show that advisers are taking sustainability seriously when it comes to suitability and taking the lead in prompting conversations around sustainability with their clients.
“As advisers look at how they can refine and evolve their ESG advice offering, considering technology will be key.
“The right technology, including solutions that help advisers screen for ethical funds or funds that make a positive and measurable impact on society or the environment, can ensure the portfolios they’re building for their clients match their preferences as closely as possible.”
Is ESG ‘too complicated’?
On a similar note, research by Pru, part of M&G, discovered that nearly half (46%) of UK financial advisers have an appetite for ESG investing, but they would require support in how to implement it.
Some 17% believe their clients see the sustainability sector as “too complicated to consider”, while 14% believe they are too old to invest in ESG products.
Despite this, the pandemic has influenced investors’ agenda and fuelled interest in sustainable investments for more than half (51%) of them.
Additionally, 45% said they now only want to invest in ethical companies and funds.
According to Pru’s research, media commentary is one of the most influential channels for changing attitudes according to 53% of advisers, followed by government initiatives and changing societal norms (47%) including campaigns on reducing meat purchases, plastic and green energy usage.
But over a third of advisers (37%) recognise that they are among the primary drivers of influence when it comes to ESG investing, as they are considered experts and trusted counsels in the field.
The number exceeds other channels such as social media (30%), industry commentators (19%) and extended family members (18%).
‘Here to stay’
Catriona McInally, ESG investment expert at Pru, said: “It’s no secret that the growth of ESG investments in recent years has been dramatic. This has largely been fuelled by the climate emergency, growing scrutiny of company practices – and some governments adopting carrot and stick policies to change consumers’ and companies’ behaviours in line with their commitments to the international community.
“But the pandemic has prompted a re-evaluation of ‘what matters most’. For many, the crisis has changed financial priorities and accelerated actions and fuelling demand for sustainable investing.
“Our research confirms clients’ growing appetite, as well as the trend for advisers continuing to become agents of change in this area. With clients dependent on their counsel for sustainable fund recommendations across all products and wrappers, advisers are increasingly key in influencing clients’ attitudes towards ESG investing. So, it’s crucial advisers understand the sources available to educate themselves more to know what their clients want out of their investments and whether this aligns with the client’s other objectives.”
Craig Ross, group proposition director at Sesame Bankhall Group, added: “Advisers have a crucial role in helping educate and engage clients in this. As a result, adviser demand for information, training and knowledge continues to grow but importantly so does their clients’ interest and appetite as media headlines continue to demonstrate the global implications for us if change doesn’t happen.
“Evidence from advisers already suggests that the younger generation are asking more pertinent questions about the underlying investments and the opportunity for good causes. Increasingly for advisers and their clients alike, ‘doing good while doing well’ really matters and, although there are clearly other ways that we can all contribute, considering ESG when investing can be one of the simplest ways of making a positive difference.
“It is well-documented that the ‘need’ for advice continues to grow, and the opportunities for advisers leading on ESG are even more substantial as expectations are that this market will continue to grow as both new and existing client demand continues.
“ESG investing is here to stay, driven by socially conscious consumers who want the positive impacts on their wealth to also have a positive impact on the world.”