ESG Investing  

Getting ready for upcoming ESG requirements

This article is part of
Guide to client recruitment during the pandemic

Getting ready for upcoming ESG requirements
Tom Swinnen/Pexels

As advisers get to grips with the impact of coronavirus on how they do business, there is another client-management challenge on the horizon for some.  

MiFID II measures coming into force in H1 2021 will require advisers to assess client attitude to ESG investment and to have a system in place, for clients wishing to invest in sustainable products. 

While these measures are due to start within the next few months, some advisers may not yet be sufficiently prepared for them.  

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Many advisers are already active in the ESG space and research commissioned by Rathbones, undertaken during November and December 2019, and published in August this year, indicated that advisers expect ESG to gain greater significance.

Every adviser who responded said they expected it to become even more important in the next five years and nearly all (80 per cent) viewed the new requirement as a positive step. A substantial amount of advisers (63 per cent) also acknowledged that client demand would motivate them to include ESG in the investment process.

Nevertheless, the research, which surveyed 100 UK advisers (half with 20 per cent or less of their book of business in ESG investments and half with 60 per cent or more), also revealed that not everyone has fully onboarded ESG advice within their company. 

A little under a fifth of advisers (18 per cent) confirmed that ESG advice is already entirely integrated within their service.  More than a quarter (28 per cent) reported that ESG advice was partly integrated and more than half (54 per cent) took the view that ESG is only relevant currently to some clients or parts of portfolios.   

Adviser needs − clear communication and support – and less ‘noise’

Some advisers believe that that there is a need for better communication about ESG generally.

“We’ve been doing this sort of questioning for some time,” says Keith Churchouse, director at Chapters Financial, adding: “ESG is a very noisy sector at the moment. We’re getting about three emails a day about it from providers and compliance companies – although none from clients.

“And this noise created by the industry is not very helpful,” he reports. “It would be good to get clear messaging from governing bodies.”

The Rathbones research also highlights a need for support, for advisers. It found that just over a third of advisers surveyed (34 per cent) said that they needed more help with introducing ESG investing to their clients – and 61 per cent said they had concerns about their clients’ lack of knowledge. Furthermore, the research pointed to another area where advisers might benefit from support; more than four-fifths of those surveyed (83 per cent) raised the issue of matching client aims to a specific strategy as challenging.

Some support for advisers on the timeline for introduction of the requirement might also be useful, as Carl Lamb, compliance director at Smith & Pinching Group, suggests: “Journalists and the regulator can help by providing advisers with information on this change. People might need a gentle reminder that it is just around the corner.”