ESG Investing  

How can advisers become informed about ESG investing on their clients' pension?

This article is part of
Guide to ESG and pension investing

How can advisers become informed about ESG investing on their clients' pension?

The “Attenborough effect” is having a profound impact on how advisers and providers are thinking about ESG investing for clients, according to Louie French, sustainable investment portfolio manager at Tilney.

French says the popularity of the TV naturalist David Attenborough’s programmes about the environment and climate, have created a new base of customers for ESG products, as an older demographic, much closer to retirement have started to focus on sustainable funds.

French says the biggest challenge this has created for fund buyers such as himself, as those in or close to retirement have more of a focus on generating income from portfolios, which he says is more difficult to achieve with ESG eligible investments.

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Most of those are in sectors, such as renewable energy, which are very fast growing, but may not be generating sufficient cash at this time to pay a dividend as well as fund the future growth of the business.

A major event for ESG-conscious advisers will be the government’s guidance on how it will apply legislation around ESG funds which has been drawn up by the EU, and is being introduced in that jurisdiction in March 2021.

As the UK has exited the EU, the UK government is not bound by those rules, but has indicated it will introduce legislation to “match the ambition” of the EU in these areas.  

The legislation is called the EU Sustainable Finance Disclosure, and requires investment product providers to regularly disclose the impact of the companies invested in.  

Tom Taylor, of  the Sustainable Finance Centre for Excellence at Aviva says: “Depending on how this is applied in the UK, if it is anything like the level and frequency of disclosure that the EU will require, then there will almost be too much data, and it comes down to how the adviser filters it.”

French says pension providers are a little behind the wider industry when it comes to ESG disclosure, but that the regulatory change outlined above may mean they catch-up. 

Taylor adds that one challenge advisers might face with clients, particularly those approaching retirement, is “the conversation” to ensure the client's risk profile as they approach retirement is aligned with the realities of ESG.

He says: “If a client who is a year from retirement comes to the adviser and says they want to put their entire portfolio into wind farms, well that might not be the right thing for the client given the time horizon, even though it's ESG compliant."

Taylor says a combination of regulatory changes means it is important a conversation is had, but in the long-term, having the conversation is better both for the client and the adviser, it makes the relationship work better for everyone.