The majority of advisers (87%) do not believe responsible investing means sacrificing returns, the latest research from Square Mile has found.
This number rose from 76% in the fourth quarter of 2020, suggesting greater acceptance of responsible investment as a credible means of securing a financial return while making a positive impact on society and the environment, the firm said.
In addition, 61% of advisers said they have clients who would be comfortable with some underperformance in order to achieve their responsible investment objectives.
Steve Kenny, chief distribution officer at Square Mile, said, “It is encouraging to see that most advisers now recognise that choosing between doing good for the planet and society and making financial returns is not a binary decision. It is also interesting to note that these findings come at a time when a combination of factors are creating performance headwinds for many responsible investment funds, following a strong run over recent years.
“Of course, investment is a long-term game, and the businesses which responsible investments typically back will form part of a more sustainable future, while those they exclude will either evolve or die away. This creates a clear alignment between investing responsibly and benefiting from the trends shaping the world of tomorrow.”
More than two fifths (42%) of advisers said they expect more than half of their new business to be responsible investment focused in three years’ time, with 60% suggesting that at least a quarter of their clients currently want to invest in responsible strategies, up from 40% in the fourth quarter of 2020.
The research also highlighted a steady increase in advisers integrating responsible investment into their business models. More than half (55%) said they had added questions relating specifically to responsible investment in their attitude to risk questionnaire, up from 43% in the first quarter of 2020, while 57% have embedded responsible investment into their centralised investment proposition.
Climate change was found to be the most popular theme (37.5%) among clients, while 76% of advisers said clients expected certain exclusions to be in place, with fossil fuels the most common (41%), followed by companies manufacturing addictive products such as tobacco (27%).
Liontrust and Royal London were found to be the most popular fund groups in the responsible investment field, with their experience and longevity in investing responsibility putting them ahead.
However, Square Mile said barriers continue to persist despite growing demand for responsible investing. Complexity was the main issue, with 57% of advisers finding this a challenge, up from 32% in the fourth quarter of 2020, partly driven by the wider choice of strategies now available. Meanwhile, just under a quarter felt a lack of information hindered progress.
Kenny added: “The fact that most advisers are now using Responsible Investment as part of their suitability fact finds and embracing it as part of their investment propositions would suggest that they have a good understanding of the direction of future regulatory requirements. At the same time, the application of a more consistent taxonomy surrounding this approach to investment will be an important step in removing a cause for confusion among advisers and their clients.”
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