While the trend in environmental, social and governance (ESG) investing has been steadily growing over the last few years, the Covid-19 pandemic and lockdown have fuelled even greater interest, with advisers looking capitalise, according to two separate reports published this month.
According to Schroders’ latest UK adviser survey, 65% of financial advisers claimed that it will increase the attention they pay to the ESG risks associated with investments; while 88% said Covid-19 has reinforced the importance of stewardship and using an asset manager who actively engages with company management.
Over a third of financial advisers (35%) believe that the crisis will impact client attitudes towards sustainable investments.
Meanwhile, a Franklin Templeton survey found similar findings were replicated globally with financial advisers around the world saying ESG investing is an opportunity to grow their business as well as deepen relationships with clients.
The study, sponsored by Franklin Templeton and conducted by NMG Consulting, examined the attitudes of over 800 financial advisers and intermediaries towards responsible investing in 10 markets across the globe in EMEA, APAC and North America, and found significant usage of responsibly invested funds, particularly in the UK and Europe.
Moreover, 90% of respondents said responsible investing was a ‘good’ business opportunity, which included 42% that described ESG investing as a ‘great opportunity’ for business.
Asset managers need to help advisers get up to speed with confusing ESG terminology
Gillian Hepburn (pictured), intermediary solutions director at Schroders, said: “In line with our findings from last year’s Schroders annual adviser survey, we are pleased to see ESG and stewardship continue to grow in importance, with 88% of advisers agreeing that the coronavirus crisis reinforces the importance of stewardship and using an asset manager who actively engages with company management.
“In our experience, asset managers have an important role to play in educating advisers on what ESG analysis means in practice and the role it can play in producing returns.”
The Schroders survey, however, was published shortly after research from ShareAction found that some asset managers are failing to engage with companies on human rights issues – while a few are actually worsening the issue.
Talking about clients’ values deepens relationships
The Franklin Templeton study found that inclusion of ESG considerations in retail client discussions allows advisers to deepen relationships by enabling new conversations around the fundamental purpose of investing and the client’s investment mission.
But, in an echo of the views from Schroders, Julie Moret, global head of ESG at Franklin Templeton, said that asset managers have an important role to play when it comes to keeping advisers informed on the subject.
“The industry needs to make sure it is aligned when discussing ESG terminology and practices. Greater transparency on ESG risks and measurement will not only better educate and inform investors in their decision-making, but also further the investment case for responsible investment.”
Michel Tulle, senior director – Europe ex-UK at Franklin Templeton, added: “The asset management industry should respond by supporting advisers as they educate themselves and clients on ESG, as well as to respond to investor demand by providing a wider range of more innovative products and solutions.”
ESG investing around the world
European advisers are leading the way in terms of ESG integration with 91% and 90% of advisers in Italy and France respectively allocating investments to ESG products.
Looking at SRI or impact-focused products specifically, Swedish financial advisers were the most interested with 70% and 68% respectively allocating to these products. Denmark and the Netherlands were also among the highest adopters of impact products and the UK is catching up with 30% of retail clients expected to make a ‘significant increase’ in responsible investments over the next two years, in contrast to the global and European average (23% and 25% respectively).
However, UK retail investors are slightly ahead of continental European peers when investing in ESG products, with 87% of the UK advisers having clients invested in ESG funds, versus 85% as the average across Europe.
Despite Covid-19 bringing social and governance factors into focus, nearly half of advisers (46%) said they believe that environmental factors are the most important for their clients in the near term. Just 34% cited governance and 20% cited social. Advisers explained that environmental issues are most likely to engage retail clients when investing for both the short and long term (46% and 63% respectively), with concerns about climate change, sustainability and resource efficiency, being the top three ESG issues advisers believe will change how people invest over the short and long term.
