New research reveals differences in preparedness as advisers brace for ESG demands

With upcoming MiFID II measures set to compel advisers to ask clients about ESG, recent research commissioned by Rathbones looks at how advisers are preparing for a more ESG-focused future. 

Every adviser surveyed says they expect ESG to play a more important role over the next five years with nearly half (48 per cent) saying it would be ‘significantly’ more so.

 
While client demand was cited by 63 per cent of advisers as a current and future motivation for including ESG in the investment process, advisers say they are also feeling increased pressure to act because of wider attention given to issues such as climate change (45 per cent). 
 
While it is not yet compulsory for advisers in the UK to ask clients about ESG investing, 56 per cent of advisers believed it was already part of the fact-find; and for many it may well now be a part of their own process. In fact, ESG is set to be a part of the MiFID II sustainable finance measures, scheduled to come in to play in early 2021. Four-fifths (80 per cent) say that being made to ask about ESG will be a positive development.
 
However, while the study provides a groundswell of opinion that ESG will be playing a part in advisers’ futures and is overwhelmingly viewed as positive, less than a fifth of advisers (18 per cent) says ESG advice is already fully integrated into their business. A further 28 per cent describe it as partially integrated and 54 per cent said it is only relevant to specific clients or parts of portfolios currently. Interestingly no one commented that ESG played no role in their business.
 
More than three quarters of advisers are confident around the terms:  ‘ESG’, ‘socially responsible’ and ‘ethical’ in relation to investing. However, the term impact investing proved problematic with 60 per cent saying their understanding was ‘weak or ‘very weak’.

Twenty per cent of advisers claim to understand the difference between the above terms, but are unsure how to apply them to their portfolios; 13 per cent said they thought the terms were interchangeable; and 3 per cent report that they do not understand the difference between the terms.
 
Just over a third of advisers (34 per cent) say that they need more support on introducing ESG investing to their clients and 61 per cent have concerns about their clients’ lack of knowledge.
 
When it comes to ESG investment selection, 92 per cent feel the small number of suitable products is an issue. And more than four-fifths (83 per cent) suggest that they find matching client aims to a specific strategy challenging.
 
When offered a choice of one or more approaches, 65 per cent of advisers expect to use a centralised investment proposition (CIP); 53 per cent saying they would delegate to or partner with a DFM and 43 per cent saying they would deal directly with fund providers.
 
Once ESG investments have been aligned with a client’s values, advisers will be looking for partner support when it comes to maintaining continued suitability. Online resources (69 per cent); DFM engagement (56 per cent); training sessions (55 per cent) and reading materials (54 per cent) will all be highly in demand.
 
Mike Webb, chief executive, Rathbone Unit Trust Management, says: “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.”