Positive impact thinking

8 April 2021

Mike Myers, head of SRI, Psigma Investment Management says by expanding their knowledge of Socially Responsible Investing paraplanners and advisers are helping clients to put their money where their values are

Interest and confidence in Socially Responsible Investing (SRI) – which encompasses ESG (Environmental, Social and Governance) investing – has been steadily gaining momentum amongst investment communities in recent years.

People have always been concerned about where to invest their money, so this mindset shift isn’t revolutionary, but interest has been accelerating, particularly since the onset of the pandemic.

Growing consciousness of issues such climate change led by high profile figures such as Greta Thunberg and concerns about the societal impact of investments has meant more investors today want assurance their money is being used as a force for good. Increasingly, they are seeking investments with a dual purpose – to deliver good financial returns and that make a positive change to the world.

According to reports[i], ESG grew to more than $30 trillion in 2018, and the trend is set to stay with some estimates saying it could reach $50 trillion over the next two decades. Consequently, many adviser firms are considering SRI as a major growth opportunity for their businesses and some instances are rebuilding their business to focus wholly on what is known as ‘impact investing’.

Schroders’ UK Financial Adviser survey published in November 2020, highlighted that 65% of financial advisers will increase the attention they pay to the ESG risks associated with investments. Over a third of financial advisers (35%) said they believe that the current crisis will impact client attitudes towards sustainable investments.

Knowledge expansion

SRI is a complex area with its own terminologies, frameworks and high-level regulatory standards that advisers are increasingly required to be well-informed on. In order to help them do so, we are working with several advisory firms to help them to expand knowledge and expertise in this nascent industry. As part of our SRI offering, we are providing training and education on all aspects of SRI, to help advisers understand potential changes to the regulatory landscape, to demystify the terminology, and understand how best to position SRI with clients and embed it into the investment process.

Another major driver for adviser firms to improve their knowledge of all things SRI are new regulations on the horizon. The EU is moving ahead with the requirements for European advisers to consider sustainability as part of suitability this month. The new requirements are amendments to MIFID II and require fund groups to disclose ESG risks in their portfolios.

Currently, the rules do not apply to UK firms because of Brexit, but they may be introduced in the future and so many firms still want to be on the front foot and ready to comply with the changes.

If the MiFID II changes are introduced, advisers will be obliged to include ESG preferences in their client fact-finding exercises in quite an in-depth and meaningful way.

It won’t be enough for them to simply ask clients if they are interested in ethical investing. They will need to really understand their clients’ ESG investment preferences in the same way they understand their risk preferences and make informed recommendations. This can be a difficult task for advisers, as people’s values and views are subjective. The key for advisers is to really understand the SRI landscape and remain well-informed about the different products available and how they would best fit the needs of their clients.

Advising clients

One firm we have recently been working with to promote a greater understanding of SRI propositions and credentials is CBW Financial Planning (CBWFP), a firm of Chartered Financial Planners within a top 50, multi-disciplinary accountancy practice based in the City of London.

CBW has a twenty-strong Financial Planning team which is led by Chris Clayton, chartered financial planner and managing director, and the firm has a strong belief that positive ESG standards should sit at the heart of any successful business.

Psigma has been working with CBW to provide training, guidance and support to the advisers in the firm. By expanding their knowledge, CBW advisers will be able to confidently advise clients about all SRI options and integrate SRI principles into their investment planning processes. The firm has benefitted from Psigma’s help in several ways.

Charlotte Elgar, head of Paraplanning and chartered financial planner at CBW said, “The market for SRI investments is expanding and becoming more mainstream. We have benefitted from working with Psigma to expand our team’s confidence and knowledge of SRI. This will enable us to meet new regulations with ease, and on top of market trends so we can provide our clients with the best advice, and help them make investments decisions that generate both healthy returns and have a positive impact on society.”

[i] SSE-10-year-impact-report.pdf (sseinitiative.org)

This article was first published in the April 2021 issue of Professional Paraplanner.

Professional Paraplanner