ESG Investing  

Investors are past the tipping point on ESG

  • Describe the impact of ESG investing on the adviser/client relationship
  • Describe the performance of ESG investments
  • Explain the position of non-ESG favouring advisers
Investors are past the tipping point on ESG
Alena Koval/Pexels

It appears that little can stand in the way of the growing popularity of Environmental, Social and Governance (ESG) investing - not even a global pandemic.

Financial advisers across the UK agree that this method of screening investments is here to stay, with many adopters already reporting benefits at a business level.

These are the findings of our latest report, which examined the level of value that has been created for advisers who have adopted ESG into their practices. 

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Developing an understanding of this topic is crucial for adviser firms and product providers alike, yet we were surprised by the lack of empirical data that was out there. To rectify this, we partnered with research consultancy CoreData to explore the growth of ESG and its impact on adviser businesses across the UK. 

CoreData surveyed 100 advisers, who were split into two groups. The first half had 20 per cent or less in ESG investments, known as the ‘non-ESG adopters’. Meanwhile, the second group had 60 per cent or more in ESG investments, and were described as ‘ESG advisers’.

The results indicate that a sea-change in attitudes is underway, with both adopters and non-adopters recognising that ESG strategies have the potential to deliver value for their clients. 

What is more, the commercial value associated with ESG adoption appears to be tangible.

For example, ESG advisers enjoyed far longer retention rates: an impressive 82 per cent of adopters recorded average client tenure in excess of 10 years, compared to 52 per cent of non-ESG advisers. This gap widened further for client tenure of 15 years plus, at 56 per cent versus 20 per cent respectively.

Both groups acknowledged that ESG improved client retention levels. A surprising 64 per cent of the non-ESG group expressed this view, while 80 per cent of the ESG group felt the same way.

This may well be linked to clients feeling more engaged with the investment process once ESG had been incorporated: a statement that almost two-thirds of non-ESG adopters agreed with, alongside 76 per cent of ESG advisers.

In addition, 72 per cent of ESG adopters agreed or strongly agreed that providing clients with access to ESG investments had increased levels of client referrals, which compares to only 36 per cent of non-ESG adopters.

Greater client engagement may go some way towards explaining why faster business growth was recorded among ESG advisers: 96 per cent of this group experienced ‘fast or steady growth’ over the past five years. This compares to only 80 per cent of non-ESG adopters. .

The performance question

Our research suggests that ESG investing can encourage deeper conversations and aid client retention, but what about the all-important question of performance?

According to the report, 75 per cent of advisers across both samples believe that ESG investments can ‘enhance investment returns’. Meanwhile, a combined 92 per cent said they were satisfied with the performance of their clients’ ESG investments.

While our report was carried out prior to Covid-19 gripping the UK, the ongoing healthcare crisis has provided one of the biggest tests for ESG strategies to date.