Lack of ESG standardisation a problem for advice firms

20 July 2021

A lack of industry standardisation for ESG investing is creating challenges for advisers dealing with the different ethical considerations of their clients.

While there has been a significant shift towards responsible investing within the industry, research from Aegon and Next Wealth found over half (52%) of advisers consider ESG criteria only at the client’s request when building retirement portfolios.

Despite this, advisers are still taking action, with almost a third (31%) stating that ESG credentials are amongst the factors they consider when building portfolios.

However, advisers said there is a question mark over how to determine a client’s ESG preferences, with ESG meaning different things for different people.

Advisers believe there should be better standards in data and language to support wider adoption of ESG approaches to investing.

Tim Orton, managing director for investment solutions, Aegon, said: “We have seen a sea-change in responsible investing with individuals increasingly looking for answers on how their investments are contributing to real-world change. This has been furthered by increased regulation and momentum from the government pushing forward it’s green agenda for investments.

“The research shows advisers are taking this seriously and considering ESG factors when building portfolios, even if demand amongst retirement clients hasn’t yet caught up with the wider investment community.

“The lack of industry standardisation, however, means advisers face challenges when dealing with the different ethical considerations of their clients.

“Firms have developed their own approaches, but as the industry shifts towards greater ESG adoption, more work is needed to support advisers to better compare ESG funds and explain strategies when building portfolios.”

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Professional Paraplanner