There are few obvious silver linings from a year dominated by the Covid-19 pandemic but one relates to ESG investing.
In Europe, flows into sustainable funds over 2020 came to €233m, according to Morningstar, double the amount recorded in the previous year.
ESG-friendly investments not only hit a tipping point in terms of demand but also fared relatively well in a volatile year, challenging the doubts once posed by critics.
The hype around ESG appears to have finally fed into investor portfolios – and into some of the conversations advisers now have with clients. Even individuals who appear less interested in the ethical and social side of their portfolio are, at least, aware of the concept.
“There is a vastly increasing consciousness about how to live sustainably and ethically,” notes Rebecca Aldridge, of Balance Wealth. “Does that translate into investments? I have seen a definite trend in clients being interested in that direction.
“They certainly know what I mean when I ask the question and increasingly they have a view about whether they don’t care about it all or care very deeply.”
All this bodes well for advisers looking to guide ESG-minded clients, and the options are plentiful when it comes to investments that could be included in a portfolio. As we note elsewhere in this guide, an issue may in fact relate to the explosion of choices on offer, and telling suitable, genuine ESG funds from those that might not walk the walk.
Yet other issues remain for advisers looking to guide ESG-minded clients. Intermediaries are seeing mixed levels of interest in the ESG credentials behind a client’s workplace pension. And while changes are making pensions more attractive on this front, intermediaries and their clients have much to keep track of.
ESG pensions: mixed levels of interest
The Association of Consulting Actuaries recently declared a “huge increase in member interest in ESG”, noting that 52 per cent of pension schemes covered in its research had reported greater interest.
The organisation added that 45 per cent of schemes were taking climate risk into account when selecting investment managers. This might be a trend driven in part by younger employees, but not entirely. “It tends to be a bigger issue with younger members but not exclusively so,” notes Kay Ingram, of LEBC.
If all of this is progress, advisers suggest that workplace pensions are yet to become an obvious part of the ESG conversation with clients. When asked, advisers generally suggested low client awareness of workplace pensions as part of an ESG toolkit.
For intermediaries, this may mean that they have to urge ESG-minded clients to properly assess their workplace pension and consider the options available. Requesting the relevant reports or checking pension accounts can be a step in the right direction, alongside assessing the funds on offer.