ESG Investing  

Knowing what the right product recommendation looks like

This article is part of
Guide to ESG and regulation

Additionally, it also does not really help a client understand the effects on their investments as the question only offers up a yes or no answer, according to Quilter. 

 

 

 

 

 

 

This can make it a challenge to really understand a client's preferences as people have a range of opinions and feelings in these areas.

A survey last October from the Office for National Statistics showed that 75 per cent of people in Britain are worried about climate change. But not all are worried to the same degree.

Miller recommends advisers consider the following when asking a client about views that may influence their investment choice, whether on the subject of ESG or anything else:

  • Avoid binary yes or no questions, as it does not reflect a range of views.
  • Ensure that questions are clear and easily understood – and that means they also should not be biased or misleading. 
  • Ask a meaningful but manageable number of questions. Enough to provide a meaningful response, but not so many as to turn clients off. 

At Quilter, the company has developed a responsible investment profiler designed to help advisers. It is a short series of questions designed to help advisers understand their client’s views.

Nigel Green, chief executive and founder of DeVere Group, says to meet clients’ expectations and/or requirements when it comes to ESG it is essential that advisers ask good questions.  

He adds: “There needs to be a far-reaching general fact-find along the lines of, 'How important is it that you invest in entities with a responsible and sustainable agenda?'

“But then questions must also be asked about the three pillars of ESG to drill down into the specifics of each to assess, and then deliver on clients’ wishes.”

Challenges 

When it comes to the finer details of finding a solution for the client, the challenges increase.

For example, the list of funds labelled as sustainable/responsible/impact is growing on a daily basis and there is still uncertainty that a fund’s name will accurately identify what is happening under the bonnet. 

Ryan Medlock, senior investment development and technical manager at Royal London, says as there has been an increasing number of managers announcing their intention to incorporate ESG risks and opportunities into their investment processes, integrating some form of ESG considerations into the advice and due diligence process is going to be critical for the advice community.

However, he adds, there are no shortcuts when it comes to due diligence in this area and it is likely to reflect a whole new strand to researching investments. 

Medlock says: “It’s a good idea to request a copy of a manager’s UN principles for responsible investment assessment report if indeed, if they’re a UN PRI signatory. 

“This is a great starting point for managing due diligence as the report is broken down at organisational and asset class level. It’s also a good mechanism for benchmarking managers on responsible investment considerations and getting due diligence processes off the ground.”