ESG Investing  

Majority of advisers ask clients about ESG but say demand is low

Majority of advisers ask clients about ESG but say demand is low

The vast majority of advisers are already factoring sustainability into their suitability assessments, despite a perceived lack of demand from clients.

Research from Abrdn showed nearly nine in ten (86 per cent) advisers said they asked clients about their sustainability preferences during suitability assessments.

More than half of these advisers (55 per cent) said they had been doing so for more than a year, while just under half (45 per cent) have started doing so within the past 12 months. 

Of those that haven’t yet incorporated sustainability questions into their assessments, nearly two fifths (37 per cent) said they planned to do so in the year to come. 

Abrdn’s bi-annual survey polled more than 185 advisers online in June 2021.

The findings indicated that advisers are ahead of planned regulatory changes that would make environmental, social and governance (ESG) factors, like sustainability, a mandatory part of their suitability assessments. 

Lack of demand

Despite this most advisers said only a minority of clients asked for their sustainability preferences to be incorporated into their portfolios.

A quarter (24 per cent) of respondents said none of their clients had asked them to incorporate their sustainability preferences in the past year, while two fifths (39 per cent) said just 1 to 10 per cent had.

Only one in ten (9%) said more than half of their clients had asked for their sustainability preferences to be factored in.                 

Steve Owen, solution delivery director at Abrdn, said: “These findings show that advisers are taking sustainability seriously when it comes to suitability and taking the lead in prompting conversations around sustainability with their clients.

“As advisers look at how they can refine and evolve their ESG advice offering, considering technology will be key.

"The right technology, including solutions that help advisers screen for ethical funds or funds that make a positive and measurable impact on society or the environment, can ensure the portfolios they’re building for their clients match their preferences as closely as possible.”

ESG definitions

Abrdn’s research also found the majority of advisers (63 per cent) had no fixed definition of ESG investing when it came to selecting funds.

More than half (51 per cent) of those that had a defined concept of ESG had developed the parameters themselves rather using ones from a third party.

Variation in industry guidance on what constitutes ESG investing (37 per cent) was the most common reason why advisers did not have a fixed ESG definition in place.

ESG sales and fund launches have surged in the past two years but this week the Financial Conduct Authority warned authorised fund managers that applications for ESG funds must improve.

Nick Miller, head of the FCA’s asset management supervision department, said the regulator had seen a high volume of applications for the authorisation of funds with an ESG focus.

And although the FCA welcomed innovation within the sustainable investment market, he said it was concerned by the "number of poor-quality fund applications we have seen and the impact this may have on consumers".