Responsible Investing: The New Normal  

Advisers need to educate clients on ESG 'compromise'

 

Advisers need to educate their clients that responsible investing is about compromise rather than trying to find a portfolio which exactly matches a particular set of ethical values.

The guests on the latest podcast in the Responsible Investing: The New Normal series, sponsored by Royal London, discussed how to meet client expectations when it comes to ESG investing.

Alan Chan, a chartered financial planner at IFS Wealth & Pensions, said it was very rare that a client held such a strict set of ethical beliefs that he couldn't help them at all.

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But he said: "We do come across the very passionate ethical investors who come to us and say 'we don't want investment in the big banks or we don't want investment in oil and gas companies' and hold very very strict principles in that regard so what we try to educate them about is that a lot of this is compromise.

"There are no black and white companies when it comes to ethical investing and it is a case of coming to a compromise and a balance between financial gain and meeting their ethical criteria. A lot of that comes [down] to educating the clients, making them understand what they are getting into."

Lorna Blyth, head of investment solutions at Royal London, added that she often spoke to advisers who worried about recommending a fund which ended up investing in a particular stock which might fall foul of an investor's ethical beliefs.

She said: "It is not just about excluding, it is about potentially tilting towards a fund that maybe represents their values or their preferences but it doesn't necessarily need to be their whole portfolio. I think that's quite an important point."

Gareth Mee, a sustainable finance consulting partner at EY, added that many fund houses these days had a relatively small number of exclusions of companies which have a negative impact on ESG criteria - instead focusing on investing in companies which have a positive impact.

He said: "So for example not many people think it's a good idea to invest in cluster munitions and so most people would exclude those but in alcohol, tobacco and energy people have got different views and so there aren't really wholesale exclusions across those sectors."

damian.fantato@ft.com