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

French says one particular challenge for advisers at a time of general pressure on fees is that ESG investing is much more commonly achieved using active funds, whereas pension providers have been increasingly keen to use passive funds in order to keep costs lower, but this is much more difficult in a pension fund, and may mean two of the priorities of many clients, ESG and low fees, collide.

He says many pension schemes now have fee caps on them, meaning that products which charge a fee that is higher than the cap cannot be invested in. 

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Heather Christie, who heads up the MyMaps fund range at BlackRock, says passive instruments are becoming an increasingly important part of the ESG landscape, with advisers able to align the clients needs to those of the range of products on the market by selecting a portfolio that does exactly what the client wants.

Cathrine De Coninck-Lopez, global head of ESG at Invesco says: "The rules that have been introduced around UK pension scheme trustees having to consider ESG and climate risks are meaningful for UK pension savers.

"This requirement means that trustees and their advisers have tougher criteria for reviewing ESG and stewardship policies and the risks of greenwashing are reduced.

"Due diligence can take many forms including specific examples, considerations of investment process, and reporting of ESG criteria alongside financial criteria.“

Maria Navaroza-Doyle, head of pension investments at Scottish Widows says many older clients now realise the dangers posed by climate change will impact their own quality of life, and not just the lives of future generations, and this has prompted changes to how older clients think about ESG investing. 

She says this means the way pension clients invest is broadly the same as any other client, as awareness of the issues has risen.

Taylor says one way in which pension savers will be impacted in future is through what he calls the “transition.”

He says: “So you hear about companies that have targets to be carbon neutral, for example, by 2050, or 2060, and maybe a pension client needs to know what that will look like in 2025, that is, what impact will making the transition to net zero have on the business between now and the target date? I think this idea of transition investing will be a major theme in future.”

Another theme he expects to be crucial for the future, according to Taylor, is that, at present, asset management firms mostly disclose what is happening at the level of the firm as a whole, rather than at the level of each individual fund, but he expects this to change in future. 

Minesh Patel, an adviser at EA Financial Solutions in London, who is presently taking exam modules in ESG investing, says the key for him when it comes to fund selection is the ESG fund ratings produced by a number of firms, including  MSCI, as a guide to which firms have the most compelling offers.”