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Advice firms say ESG ‘significantly’ more important in next 5 years

31 August 2020

Advisers agree that ESG will play a much more important role over the next five years, yet only a few have fully integrated ESG into their business, new research from Rathbones has discovered.

ESG will become part of the MiFID II sustainable finance measures, set to come into force in early 2021, and 80% of advisers said that being made to ask about ESG will be a positive development for the industry.

Rathbones found that all 100 advisers surveyed expect ESG to play a more important role over the next five years, with nearly half (48%) saying it would be “significantly” more important.

Client demand was cited by 63% of advisers as both current and future motivation for including ESG in the investment process, while 45% of advisers reported feeling increased pressure to act because of climate change.

Yet, despite the findings, less than a fifth of advisers (18%) have already fully integrated ESG into their business. A further 28% have partially integrated, while 54% said it is only relevant to specific clients or parts of portfolios.

While the majority of advisers felt confident using the terms ‘ESG’, ‘socially responsible’ and ‘ethical’, three fifths (60%) admitted that their understanding of the term ‘impact investing’ was weak. Meanwhile, just over a third of respondents (34%) said they needed more support on introducing ESG investing to their clients and 61% had concerns about their clients’ lack of knowledge.

The lack of suitable products was also cited as an issue by 92% of advisers, while 83% said they found matching client aims to a specific strategy challenging. When it comes to their strategy, the majority of advisers (65%) said they expect to use a centralised investment proposition, while 53% said they would delegate or partner with a DFM and 43% would prefer to deal directly with fund providers.

Mike Webb, chief executive, Rathbone Unit Trust Management, said: “The project has been fascinating, and underscores how well advisers recognise the importance of ESG now, and the steep trajectory on which it is set. With or without a MiFID II mandate, the study reveals more needs to be done, and advisers are seeking partnership and support, in terms of both knowledge sharing and physical collateral.

“There are gaps in ESG strategies and product ranges, suggesting adviser businesses and providers need to work closely together to ensure clients’ values are met with suitable products and services.”

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