The advice industry needs to adapt the way it deals with ESG in line with clients' new expectations, according to a partner at St James’s Place.
Speaking at the Global WealthTech Summit last week (November 3), SJP partner Kanishk Swarup said previously a wealth manager would have one ESG fund or a couple and that's as far as they would go.
But now clients want more.
He said: "Post covid, clients want more, investors want more. It’s not just good enough to generate returns, that's a given, you need to perform and returns have to be there, but they want their money to go further. They want their money to be actually helping make the climate a better place and make the world a better place, make the world more sustainable.
“I think what wealth managers are having to do is to fundamentally change the way they think about these things and rather than just having couple of funds, which are ESG focused, their entire DNA in the way they select the fund managers, in the way they mandate the fund managers on what they are allowed to invest in or how they should be investing, needs to incorporate ESG as one of their selection categories.
“[This] means that everything that a client would be invested in would have been selected through the lenses of ESG which I think is a fundamental change that I've seen in the last couple of years.”
Also speaking on the panel was John Ditchfield, head of responsible investment & wealth management adviser at Helm Godfrey.
He agreed there was a shift towards ESG investing as clients, investors and people were more concerned about the impact their money is having on the world around them.
“We've got COP26 at the moment - there is a big outcome there around investing and financial markets so that's pushing a lot of people to ask questions about their money.
“A big trend that I'm witnessing is that sort of demand from private investors for a degree of understanding and relationship with their investments that was less in evidence.”
No standardised benchmark
ESG is a hot topic in the industry right now, with the Financial Conduct Authority also having published a discussion paper last week, outlining that it is to require intermediaries to take into account sustainability issues when advising clients.
Speaking at COP26 last week (November 3), chief executive Nikhil Rathi also discussed the FCA’s ESG strategy and pledged to embed climate considerations into everything it does.
Ditchfield said: “Many of the funds that I deal with are already compiling data on their underlying investments to be able to comply with European regulation that's coming here to the UK and there will be some sort of taxonomy in green investing so that's changing the picture in terms of what the investment houses have to do."
But both Swarup and Ditchfield said a big problem with selecting ESG or ‘green’ funds was the lack of a benchmark.
Ditchfield, who also runs a research practice which looks at investment funds' sustainability, said the data was “extremely unstructured”.
“The problem is that the data that comes back from the investment fund manager is hugely unstructured so it will be completely different from the last manager and their approach to engagement or climate change and so it's very difficult to analyse. That's a huge challenge.”
Swarup added: “From my standpoint, as an adviser or wealth manager, it's just that there is no standard benchmarking. There are hundreds of funds out there which call themselves to be ESG focused, for example, but there is no standard.
“I wish that over the next couple of years, we get the standard benchmarking, which is globally accepted, where every fund gets a rank from say zero and 100 gets a score and then it's easier for investors and advisers to be able to put criteria.
“I think that would be the big breakthrough because right now it's very hard to measure how far one particular fund manager has gone versus the other.”
sonia.rach@ft.com
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