Approaching ESG – client needs, adviser expectations

ESG is fast becoming a popular approach to investing. 66% more investors are actively engaging in ESG products than 12 months ago and this trend looks set to continue. Our research* shows that advisers are aware of the increased interest in ESG, with 92% believing it will be a larger proportion of investing than any other in two years’ time.

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However, the expectation appears to be that this increase in ESG investments will be driven largely by investors, not as a result of advisers promoting it to their clients. Are advisers missing a trick by expecting their clients to approach them – should they be getting a step ahead by introducing the subject themselves? Our ESG Resource Hub might be a good place to start, with lots of client-friendly material to help get the conversation rolling.

Expanding on ESG terminology

ESG as a term is not widely used among investors – they’re more likely to talk about ethical or responsible investing, or even ‘doing good’ with their money. It’s easy for anyone to relate to environmental issues – global warming, carbon neutral and climate change are commonplace terms and recycling is a normal part of life. Relating the social and governance side of ESG to clients’ everyday lives will help them understand these elements too. For example, governance can relate to the way companies are run, including policies to promote diversity and audits to ensure good practice. Social measures might include workplace schemes encouraging flexible hours, ensuring acceptable working and living conditions for employees or companies’ relationships with suppliers and customers.

Case studies bring industry terms to life and make them relatable, helping clients to feel their choices are making the difference they want to generate. Using terms like ‘how companies are run’ or ‘the way employees are treated’ creates a narrative everyone can relate to.

Not just the E, but the S and G too

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Our research shows that more advisers are focusing on the ‘E’ of ESG – environmental factors relating to funds. We also found that investors are interested in all aspects of ESG, which may lead to advisers being limited by their own knowledge and the options they’re presenting to clients. For example, 73% of advisers feel that addressing climate change and global warming is important to their clients, but just 58% of those clients agree. At the other end of the scale, 61% of investors put an emphasis on employee health and safety when looking at funds, compared to only 27% of advisers. Expanding on their knowledge of the S and G could help advisers give investors the support they want, whilst also being able to link each factor to the others. For example, employee health and safety (Social) links directly to the environmental impact of a company’s factories – are employees protected from damaging fumes caused by machinery, or are greener energy options being embraced that reduce factory pollution?

The environmental aspect of a fund is still a good starting point when clients have an interest in ESG, but little knowledge of what it encompasses. Starting with the ‘E’ of ESG can help clients relate the investment choices to well-known actions – indeed, even for more experienced investors these environmental concerns still rank high on the list. The next steps for advisers, however, is to ensure their own knowledge of social and governance responsibilities is enough to enable them to promote these aspects too.

Still stuck on where to begin?

We’ve developed an ESG Resource Hub, to help you get started. Tools include a video for clients – “What is ESG?” – as well as a jargon buster and an adviser QA, giving tips on introducing ESG into the conversation and ways you can establish your clients’ ESG needs.

73% of investors who don’t currently consider ESG believe they are likely to do so in the future. This group is also younger (under 45) and more affluent than those who don’t anticipate looking into ESG investing. With 30% holding over £50,000 in savings and investments the opportunity to promote, advise and manage extensive ESG portfolios is a very real possibility. 

Sources
* ESG Landscaping Research June 2020 by Big Window for Aviva