ESG InvestingJan 28 2021

Advisers face ‘high barriers’ to integrate ESG

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Advisers face ‘high barriers’ to integrate ESG

Advisers face “high barriers” when working to integrate environmental, social and governance investing within their firm, a new report has found, as third party tools fail to cut the mustard.

According to Crossing the ESG Event Horizon — a report published by the Lang Cat today (January 28) — advisers had “good intentions” when it came to ESG but struggled to find adequate tools and materials to help them navigate the maze.

It said: “Asset managers [...] are generally adept at putting a good spin on things. So how do advisers ascertain the extent to which ESG factors are really embedded in asset manager investment processes and wider culture?

“When we asked for views on the types of tools and materials advisers might reach for to stay afloat in the foamy seas of ESG, [advisers] returned a definitive ‘trying but could be better’.”

Some 40 per cent of the 316 advice professionals polled in autumn last year said there was “lots of work needed” in terms of the information available on platforms when identifying the relative ESG credentials of existing holdings, with those advisers saying there was “virtually nowhere” to find such data.

A further 35 per cent said there was work to be done in this area, but noted there was progress being made. Just 1 per cent of advisers polled said information on existing holdings on platforms was “in a great place”.

The same was true when asked about the tools provided by platforms for ESG research, with a similar proportion of advisers (41 per cent) saying this area needed big improvement.

Ratings agencies fared better. Nearly half of advisers (48 per cent) said they could see good progress being made in the information and technology available from ratings agencies in terms of ESG research, and 15 per cent said ratings firms were in a “good place”.

Advisers were also slightly more positive when asked about asset managers themselves, with only a fifth of those polled saying they needed lots of work, 45 per cent reporting fund houses were making progress and nearly a quarter (23 per cent) happy with the service.

In terms of recommending an ESG solution to clients, advisers were most confident researching the sector for an off-the-shelf asset manager range of portfolios, with 58 per cent of advisers reporting they were confident to do so.

Advice firms said they were least confident when it came to creating their own fund or stock picking based on ESG criteria. A third of those polled said they were unconfident in this remit, and only 45 per cent felt they could research this successfully.

How advisers are responding to ESG

The Lang Cat said: “Most advice professionals are not sitting on their hands. 

“The verbatims we’ve collected suggest a three-way split between those (the majority) who are positive and up for the whole ESG thing, those who couldn’t see it far enough and those who find it all a bit difficult to navigate.”

Some 42 per cent of firms had an existing ESG process in place for all clients, while 31 per cent said they were led by the client and had a process ready if the topic naturally arose.

Nearly a third (32 per cent) were working on it and a mere 2 per cent said they were not thinking about it at the present time.

In portfolio construction, most advisers had some form of ESG consideration, whether that be as a separate asset class (29 per cent), a minimum level across the board (17 per cent) or a “high bar” which all portfolios had to reach (7 per cent).

The report added: “While views on ESG are mixed, our respondents do expect demand to rise and sharply, too.

“While around 30 per cent told us their clients ‘don’t care about this sort of thing’, the uptick in demand, combined with direction of regulatory travel, is very much reflected in the level of engagement firms report.”

imogen.tew@ft.com

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