Mr Selman also sees ratings agencies as a possible useful outsourcing option: “Ratings agencies such as Morningstar, Square Mile, FE Fund Info and RSMR provide fund ratings for advisers who want to retain control of their client’s assets and populate off-the-shelf asset allocation models with ESG funds. Such providers also provide off-the-shelf ESG model portfolios.
“In addition, there is the option to allocate to multi-asset portfolios that manage through an ESG lens.”
There are other considerations involved, however, as Mr Tayler suggests: “If advisers choose to use model portfolios or multi-asset products, they will need to understand how these solutions can meet the differing sustainability preferences of clients.”
Forty shades of green
There are some potential pitfalls for advisers to be aware of: “It’s important that advisers conduct their own robust due diligence if they want to avoid ‘greenwashing’.
“It remains one of the biggest challenges facing advisers,” warns Ryan Medlock, senior investment development and technical manager at Royal London.
“The list of new sustainable funds being launched is getting bigger, as is the list of managers announcing their intention to incorporate ESG into their investment processes.”
He adds: “Advisers need to make sure they don’t fall for clever marketing campaigns. That means formally including ESG considerations within wider research and due diligence processes.”
The language around ESG investment is an issue too, as Mr Medlock explains: “Terminology poses a significant challenge and advisers should familiarise themselves with the Investment Association’s responsible investment framework, which details the most common investment approaches and terminology.
“That will allow advisers to communicate with their clients on ESG in a more open and consistent manner.”
Mr Selman also highlights the issues of marketing, greenwashing and ESG language: “ESG has grown as an area of focus for retail clients very quickly and there has been a flurry of fund launches, with asset managers looking to monetise the trend.
“The varying degrees of expertise within fund groups on all things ESG has created greenwashing, with some funds being repackaged as ESG without much substance behind them.
“Terminology is used interchangeably and thus incorrectly, leaving advisers confused.”
He adds: “Advisers should look beyond funds and model portfolios in isolation and assess the ESG credentials of the businesses running these funds.
“Corporate culture, experience in integrating ESG and the way in which asset managers manage client money outside explicitly labelled funds, are all key to identifying greenwashing and the possibility of nasty surprises in the future.”
Advice and guidance
However, advisers can increase their ESG knowledge in a number of ways, as Mr Medlock explains: “There is a wide range of educational resources available to advisers to strengthen their understanding of ESG investing.
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