Sustainable investing is now not area of interest

Catriona McInally, investment business development manager, Prudential

ESG – Is it just a fad or is it here to stay?

Given the amount of money we have seen flowing into environmental, social and governance (ESG) funds, those dismissing sustainable investing as niche are increasingly being proven to be incorrect.

ESG investing is growing in popularity as more and more investors take an interest in where their money is invested. The climate emergency — described by UN secretary-general António Guterres as “code red” for humanity — changing government policies, European legislation and the increasing scrutiny on company practices have heightened demand for both sustainable investing and sustainable living.

I believe over time more clients will view sustainable investing as a core part of ‘doing their bit’ to help protect and improve the planet.

What types of client will be interested in ESG?

This depends on how you ask the client the question — if at all. I speak with many advisers who say clients are not interested in ESG but, when pressed, they admit to not asking the client about their sustainable views or preferences.

Advisers admit to not asking clients about their sustainable preferences

Recent adviser research carried out by Pru UK indicates that younger clients appear to be more interested in sustainable investing. The research also highlights that, the older clients get, the harder it becomes for advisers to change their perception of ESG investing.

Do I need to ask clients about their sustainability preferences?

Although there is no UK regulatory requirement to do this, it is now a requirement in Europe and the indication from our regulator is that we are likely to follow suit, albeit with no timescale at present.

Over time, more clients will view sustainable investing as a core part of ‘doing their bit’ to help protect and improve the planet

Incorporating some form of questioning into your factfind is likely to help you achieve a more personal outcome for the client.

Clients’ interest in ESG will range from wanting to achieve a financial return but avoid harming the planet, to still achieving a financial return but investing with an aim to improve the planet for this generation and the next.

As an adviser, what should I think about when considering ESG?

Above all, consider whether you will ask the client the question and open up the opportunity for discussion. You need to be prepared for the answer and confident you can accommodate the response you may get.

Perhaps segment your clients into three categories; for example, those not interested, those who have expressed an interest and want to know more, and those who perhaps have rather strong beliefs and have specific requests.

We have found that many clients fall into the second category.

Clients who have very specific ESG values are often outsourced to a specialist firm because offering bespoke portfolios is not a viable option for many advisers.

You may want to include questions in your existing factfind, or have a separate document where ESG is explored and client responses are recorded.

Incorporating some form of questioning into your factfind is likely to help you achieve a more personal outcome for the client

What will your research and due-diligence process look like? With so many ESG fund launches, keeping on top of developments can be time consuming.

There are many research tools to assist with this but understanding how funds are rated from an ESG perspective will be crucial to ensure you align the fund selection to the client’s sustainable preferences.

Finally, spend some time looking at the credentials of your existing fund solutions. There is a high chance that the funds you currently use already factor in some form of screening or selection process, which may already meet the requirements of many of your existing clients.

This is just for UK advisers. It is not for use with clients.

Cat returned to Prudential in 2008 as a business development manager specialising in investments. Prior to this, she worked as an account manager within Prudential Distribution before taking a short break to join Paradigm, where she worked with advisers to help implement their centralised investment proposition and platform integration. Cat currently works with her colleagues to promote Prudential’s investment proposition covering funds, tax wrappers, IHT and trusts.

She is a fellow of the Chartered Insurance Institute and a member of the Chartered Institute for Securities and Investments, and holds the Investment Management Certificate. She is studying for the STEP diploma on trusts and estates.