Talking ESG – key takeaways from the experts

Our “Talking ESG” webinar was a resounding success, with some very insightful discussions amongst our panellists. Here’s a brief recap of those involved and a summary of the main conversation points.

The panel

Steve Nelson – Insight Director, The Lang Cat (Host)
Jeannie Boyle – Executive Director, EQ Investors
Lee Coates – Director, ESG Accord Ltd
Al Ward – Head of Intermediated & Retail Propositions, Aviva
Tom Bolland – Investment Solutions Manager, Aviva

Existing investments and ESG

Jeannie Boyle outlines how to talk about ESG with clients, beginning with the comment that clients don’t actually understand what ESG means. Jeannie talks about the vital necessity of discussing a client’s life plans and goals in order to fully understand their ESG preferences. Even longstanding clients may not have shared these beliefs before, simply because they haven’t been an integral part of financial conversations in the past. Jeannie’s advice is to treat all clients like new clients in this respect, to gain the deepest possible insights into their values.

The next step is to take each client into a deep dive of how their money is currently invested. Using the UN’s Sustainable Development Goals (SDG) is a good way of measuring a fund’s ESG credibility. They look behind the fund names to the companies themselves and give a much more accurate picture of those funds’ ESG criteria.

Jeannie emphasises the need to create an emotional relationship between a client and their money, using tangibles to bring ESG data to life:

We’re humans – we need stories. Financial data is wonderful….but people like to understand things in terms of stories and people and things that they can relate to. It really creates a much more intense, personal connection with money than anything else we’ve ever done. That sense of ownership and responsibility is built in to their portfolio and relationship to [their] money. Jeannie Boyle

Clients also need to understand the impact wider world events could have on their ESG investments and advisers need to be sure their clients understand, and are happy with, the levels of risk this brings. ESG investments are focused on the long term – both in terms of impacting change and getting a good return. Advisers should have ongoing conversations with their clients to confirm they are still happy with their investment approach.

ESG and compliance

Lee Coates gives a very useful explanation of the way ESG is being passed to the industry to implement, emphasising that it’s not a fad but a directive from the government, via the Treasury and the FCA, to effect permanent change in the financial services industry.

In reality, this means financial advisers will need to build a robust compliance process demonstrating their commitment to, and inclusion of, ESG in their client relationships. Lee discusses the current measures in place to ensure this happens and gives an overview of new legislation in 2023 which will have a significant impact on industry incorporation of ESG.

Lee talks about creating new compliance processes, including a communication strategy to help advisers capture their clients’ views on ESG – without this we could see a sharp increase in complaints:

If you’ve not looked a client in the eye and asked them their views of ESG and sustainability, you’re not going to know what their response is going to be. If you don’t mention it, that’s a complaint waiting to happen - the first time [a fund’s] performance goes a bit wobbly, the client’s going to come back and say, “Ah, but if you’d offered me X, Y and Z, I would have had that at the time.” Lee Coates

He also warns against complacency when it comes to asking those questions – “Do you want ESG?” is simply not enough to fulfil ESG requirements.

Aviva’s approach

Al Ward explains how Aviva’s new ESG tool is independent: instead of giving its own scoring to ESG fund elements, it takes information from a number of data providers and turns that information into measures which are relatable for both adviser and client.

Our intention has been to take the data and the information and make that usable and accessible for advisers, so they can start having those conversations [with clients]. Our approach has been to build and deliver the tool that will help [them] understand what the fund is doing. Al Ward

Al makes the point that it’s not a straightforward judgement between “good” and “bad” funds – the tool uses key metrics to analyse ESG components and the adviser can then use this information to help clients choose their funds.

The tool also helps the adviser establish what their client’s preferences are. This will be invaluable when looking at new investment options.

Tom Bolland emphasises that the data the tool uses has always been publicly available, but difficult to analyse. The ESG tool is able to take data from independent specialists and put that data into a manageable, measurable format. It’s also flexible, allowing Aviva to add new data sets as demand for statistics grows.

Issues for “standard” investments

Steve Nelson raises the point that companies often create a “specialist” ESG range, specifically for those interested in responsible investments. But what about “standard” investment vehicles – the core funds that will cater to the majority of investors?

Almost exactly half of firms [we’re talking to] have no process at present for reporting or looking through on existing investments, irrespective of whether they’re ESG or not. Steve Nelson

How will these firms be able to fulfil their ESG responsibilities amongst their clients’ existing investments?

Lee has some observations on the expectations of clients and the practicalities of advisers being able to provide a much deeper level of detail. There is a definite shift towards a more collaborative effort between client and adviser. They work together to establish the client’s values and opinions on ESG issues and the adviser then searches for funds that will fulfil these criteria.

However, there is a question over how much detail a client will want to receive from their adviser and whether the adviser has the capacity to look into every stock within a portfolio. Lee has some observations regarding the role product providers will need to play, including sharing far more of their methodology, without confusing the client with endless data.

Who should make the next move?

There is a resounding agreement that ESG is not going away. Those who choose to ignore it will not only be left behind by their competitors but will also find themselves answering to the FCA. With new legislation being introduced next year, now is the time to take action. And that action starts with the client.

Let the client talk. Why not? It’s their values. Provided you’ve informed them about why the questions are there and where they’re coming from, let the client be far more involved in the financial process. Lee Coates

Get the full conversation, on demand

If the snippets above have whetted your appetite, why not watch the webinar in full? It’s available on demand now – just click on the link and register your details to access the webinar. The recording is eligible for 45 minutes of CPD.