ESG Investing  

Industry ‘doomed’ to repeat ESG blunders

Ryan Hughes, head of active portfolios at AJ Bell, agreed. He said: “We have seen the increasing coverage of climate issues and the impact corporations have on societies, and we are now seeing real momentum, with that translating into the way corporations are behaving. Now, investors are starting to have an impact with their money.”

Mr Chan and Mr Morris said they have “certainly” noticed a rising trend over the past few years.

Others were more sceptical. Darren Cooke of Red Circle Financial Planning said he saw “almost no interest at all” from clients.

He said: “In truth people don’t care, but if you ask them, they absolutely will tell you they do.

“And what is ESG after all? It’s a farce, and what might class as ESG to one person won’t to another.”

On top of this, the world of ESG investing is not all rosy.

The recent Boohoo scandal was a prime example of the issue – the fast-fashion retailer was held by at least 20 ESG funds when it was alleged that workers making its clothes were paid below minimum wage and suffered poor working conditions.

Situations like Boohoo’s, combined with the complex nature of a client’s ESG choices, have created a confusing and challenging maze for advisers.

Do not be an ostrich

With regulations set to come into force next year, advisers have been urged to not be an “ESG ostrich” and “bury their heads in the sand”.

Ms Woodward said: “The regulatory mandated inclusion of sustainability preferences into the advice process is an important development, but many advice firms have more to do to properly account for client’s ESG choices.

“For many firms, it is still very much work in progress.”

Webinars and conferences could help, although she stressed the need to realise that no two clients are the same when it comes to ESG.

Mr Hughes agreed, adding it was “vital” for advisers to “look closely under the bonnet” to really understand how a fund’s ESG approach was integrated.

He said: “There are a lot of new entrants in the market right now and some have little heritage of managing ESG funds, while others have significant pedigree.

“I much prefer to focus on those who have the experience of working in this way for many years rather than those who have just seen the light.”

Both Mr Morris and Mr Chan urged fellow advisers to embed ESG into its advice process and investment proposition.

Mr Chan said: “We’ve embedded it into our process at an early stage of the business, so we explore these investment preferences for all new and existing clients, to ensure investments are aligned with their values.”