Research in Finance data shows ESG integration is fast becoming a ‘must have’ and points to the emerging disclosure expectations of UK fund selectors and investors.
New data from Research in Finance has revealed that almost half (45%) of financial intermediaries agree that ESG integration has gone from ‘nice to have’ to ‘must have’, up from 24% the previous year.
Discretionary fund managers (DFMs) put this higher up the priority list with 57% agreeing that this is the case, compared to 32% of financial advisers.
This is in part driven by fast-improving knowledge and appreciation of responsible investing. Over two thirds (69%) of DFMs feel they have a good understanding of ESG integration; only half (52%) did a year ago.
Financial advisers haven’t enjoyed comparable knowledge gains, but their perception of responsible investing has improved alongside DFMs’. 63% of intermediaries now believe that responsible investing could be suitable for their typical client, compared to 45% the previous year.
The annual UK Responsible Investing Study also found there is a growing client demand for responsible investments: 78% say demand from their clients has increased over the last 12 months, driven mainly by greater environmental and social awareness and heavier media coverage. 92% of intermediaries said they now invest in/recommend responsible investments to at least some of their clients, with these increasingly being incorporated into centralised investment propositions.
Increased familiarity with and use of responsible funds means the spotlight is on fund managers’ ESG and impact disclosures. 72% of intermediaries say the quality and depth of a manager’s ESG reporting is important, with climate change risk exposure, carbon footprint and overall environmental and social impact of a fund versus its benchmark among the chief metrics considered.
Annalise Toberman, head of Insight at Research in Finance, said: “The larger wealth management firms really intensified their efforts towards responsible investing over the year and continue in that vein. As these firms tool up, they inevitably become more discerning customers – they expect greater transparency from fund managers around ESG and impact.
“Scrutiny is currently aimed at funds badged as ‘responsible’ or ‘sustainable’ but could easily extend to managers’ whole ranges – not least because some groups are already making ESG scores available for all of their funds.”
Jack Dominy, senior research consultant added: “As understanding and knowledge around responsible investing continues to build among intermediaries, the demand for improved transparency will only increase.
“End investor demand for responsible solutions is growing, but as the volume of funds and complexity around terminology increases, these investors are looking for easy to understand and tangible information to help inform their decision-making when it comes to investing responsibly.
“This means retail intermediaries are looking for the same from fund managers’ ESG reporting, so evidencing the impact of investments from both an ESG and financial point of view will be crucial moving forwards.”
Research in Finance’s annual UK Responsible Investing Study was conducted among 210 intermediaries (discretionary fund managers, financial advisers and paraplanners) surveyed 20 November – 10 December 2020.