Responsible investing's future  

How to discuss ESG investing with clients

"The client who you mention it to and says they absolutely want to do it with their 4.5l car sitting on the drive while you discuss their three long-haul holidays this year is the classic case in point: 'But that's OK because my pension is invested ethically so I'm doing my bit aren't I?'

"Personally I am yet to be convinced that ESG investing actually has any real impact. I think the way we consume and the companies we buy from is far more likely to influence a company's culture than who owns the shares. We don't need ESG investing, we need ESG living.”

Barry Strathearn, compliance director at Lowes Financial Management, an advice business, says: “As advisers we have a great opportunity to help clients feel engaged with their investments, and while not every client may in the past have been focused on ethical or sustainable investing, regulatory changes require ESG preferences to be taken into consideration when firms undertake a client assessment.

"At Lowes Financial Management, we also seek to understand if there may be any religious considerations that should be taken into account as well as the client's ESG preferences.

"Over recent years we have seen a shift in attitudes, which have been driven by a variety of factors such as an increasing awareness of climate change and the potential benefits on a company’s performance from having an ethos of strong corporate responsibility. We now also see some investments that produce an ‘Impact Investment Report’ detailing how much carbon is offset per year from the sustainable investment.” 

He adds that as an investment professional he is concerned about how some funds may be marketed as sustainable on spurious grounds. Patel says he tends to use funds by providers such as Baillie Gifford and Liontrust, which have an established track record, as a way to avoid greenwashing. 

Matthew Connell, director of policy and public affairs for the Personal Finance Society, says: “Financial advisers need to understand their client’s motivation and understanding of ESG to effectively engage in discussions and make suitable recommendations.”

He adds: “For example, does the client want to ensure their investment portfolio reflects the causes they feel passionately about or simply avoid what they consider to be irresponsible companies. Are they an avoider, an amplifier or both but in different areas? If so, in what areas?

“Financial advisers need to be able to understand the different ESG approaches taken by fund managers in order to be confident they ‘do what it says on the tin’ and greenwashing isn’t happening.”