ESG Investing  

Advisers struggling without ESG definitions

Advisers struggling without ESG definitions

Advisers are struggling amid a lack of transparency on environmental, social, and governance definitions as they wait for regulatory clarification, experts have warned.

There is concern that, in the absence of any regulatory-approved definitions on what should make up an ESG or sustainable fund, the advice profession is feeling the lack of definitions the hardest.

Advisers are also worried they will be judged on asset allocation decisions made today by criteria developed in the future.

Wendy Appleton, head of UK wholesale sales at Pictet Asset Management told FTAdviser there was a huge amount of work still to do to align ESG and sustainable definitions.

“There needs to be something in place which is going to help advisers," she said.

“That is the segment of our market that is probably struggling the most with [questions of] incorporating ESG funds, including more responsible investing and getting these messages across to clients.”

There are currently no rules in the UK on what qualifies as a ESG or sustainable fund.

The FCA will soon require advisers to take sustainability issues into account when advising clients, and it is currently consulting on criteria to classify and label investment products for firms involved in investment management and decision-making processes.

Losing clients

Nearly two out of three retail investors (63 per cent) have or would consider moving investments to new advisers because they are unhappy about their wealth manager's ESG focus, according to research from Oxford Risk.

A survey of 1,022 adults between January 28 and 30 undertaken by Consumer Intelligence showed that 20 per cent of investors had already moved adviser for this reason, or were planning to do so.

One in three (31 per cent) of those questioned said they currently rate their adviser's ESG commitment highly or very highly. 

Some 62 per cent said they were neutral about their adviser's ESG focus.

Greg Davies, head of behavioural finance at Oxford Risk, said advisers who did not demonstrate a commitment to and focus on ESG investing will lose clients.

In particular, he added, deployment of cash into new investments will greatly favour strong ESG propositions.

“The role of technology in the hands of investment providers and advisers is crucial to grasping the opportunities and meeting the responsibilities of matching socially-minded investors to suitable ESG investments.”

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John Ditchfield, head of responsible investment at Helm Godfrey and chairman of Impact Lens, said there is still a knowledge gap.

“There is a problem, because most advisers don’t really have much knowledge and understanding in this area, it’s not something they’re terribly interested in, so you’ve got a dearth of knowledge and quite a lot of complexity.”

He said fund groups aren't making it particularly easy for advisers to understand what terms like ESG and sustainability really mean in each individual fund.