ESG regulations and their impact on advice

  • Describe the regulation that will affect advisers on ESG investing
  • Identify the questions you should be asking your clients
  • Explain what impact this will have on your advice proposition
  • Describe the regulation that will affect advisers on ESG investing
  • Identify the questions you should be asking your clients
  • Explain what impact this will have on your advice proposition
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ESG regulations and their impact on advice

The DWP is going even further with new rules in October 2020 which will place more onus on trustees to disclose their engagement activities with asset managers.

There were also new rules which came into force in April from the FCA aimed at Independent Governance Committees which now requires IGCs to report on their firms’ ESG policies. All of this reflects a clear signal of intention from regulators and policymakers alike.

ESG preferences are not suddenly going to take precedence over other suitability criteria but it is another layer that will need taking into consideration.

It is therefore worthwhile to take some steps now and consider how to embed ESG preferences within your client fact finds and annual reviews. This could put you one step ahead of the field.

Questions to ask your asset managers

Responsible investment has grown over 40 per cent since 2014 and is quickly establishing itself as the ‘norm’.

There has been a growing prominence of ESG considerations within the institutional market for a good number of years and this is now starting to flow into the retail market.

In January 2020 alone, responsible investment funds saw record net retail sales of £526m in January.

This is largely being driven by a combination of regulatory change and societal shifts such as the mass rejection of single use plastic and peer-to-peer fashion trading, to name a few.

An increasing number of asset managers have announced their intention to take ESG factors into account within their investment process.

This increased focus provides a good opportunity for advisers to understand more about the different responsible investment approaches, and to review due diligence procedures in advance of the regulations coming into force.

My advice would be to leverage as much information as you can from the asset managers you use on their policies in relation to responsible investment. 

Some questions to ask 

These are only examples, but collectively they dig into a firm’s policy and strategy in relation to responsible investment and help you evidence to clients that these are embedded into investment processes, portfolio management, and governance.

They are also questions that Royal London, as an asset owner, asks the asset managers that look after our customers’ money as part of our due diligence process.

Here is a checklist of potential themes and areas to focus on:

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