ESG Investing  

Boohoo issues highlight ESG ‘minefield’ for advisers

Clive Waller, managing director of CWC Research, said: “The adviser should ensure they discover what the client wants. It could be ethical, thematic, sustainable or ESG.

“This may be painstaking, as a client may wish to invest in companies that do good. This is subjective. For example, medical protective equipment is made from plastic, largely, which comes from oil.”

Mr Waller urged “good IFAs” to develop a proposition and to research providers who could fulfil it.

David Boyhan, a consultant at compliance firm TCC, agreed. He said: “Having a client tick a box to say they are interested in ESG funds won’t tell the full story. There needs to be a conversation about why the client is attracted to these funds.”

Meanwhile Darius McDermott, managing director of FundCalibre, said funds that provide their own ESG analysis were a safer bet as third-party data providers were “backwards looking and had notable gaps”.

He added: “Good fund due diligence should involve understanding the criteria of an ethical fund and the process taken to get there, cross referenced with the portfolio to identify any contradictions”.

A report by wealth manager SCM Direct, published in November last year, revealed there was a low correlation between different ESG scores.

For example, Tesla is ranked by MSCI at the top of the industry on ESG issues while FTSE brands it as the worst carmaker globally. Sustainalytics puts the company in the mid-table.

According to the report, MSCI had given Tesla a near-perfect score due to its clean technology, while FTSE ranked it low as it only rated the emissions from its factories.

Hortense Bioy, sustainability research director at Morningstar, said there was “no shortcut to proper due diligence when selecting an ESG fund”.

She added: “This is where ESG allocation funds can come in handy. Multi-asset fund managers can apply consistent exclusions policies and consistent ESG incorporation strategies across the whole portfolio.”

But Mr Nelson urged advisers to look to specialists for help.

He said advice companies’ centralised investment propositions were often not compatible for clients with stringent ESG principles, so outsourcing was the “safest way” to deal with bespoke needs and requirements.

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