Industry barriers preventing further adviser promotion of ESG investing

Financial advisers have cited a lack of clear standards and definitions and the potential for greenwashing as being two key factors in preventing them promoting ESG investing further to their clients.

Research from FE fundinfo’s Financial Adviser Survey finds that despite growing client interest and an increase in the ESG investment propositions available, 56% of advisers believe that a lack of clarity in terms of what ESG investing entails is preventing further adoption of ESG investing, while 55% believe fears over greenwashing are stopping them promoting ESG funds.

Barriers to entry

This is despite the vast majority of advisers (72%) now offering an ESG proposition to their clients, a 7% increase on the past year, and 79% of advisers saying their clients are showing a growing interest in ESG investing.

Client understanding of ESG

Clients’ understanding of ESG investing is also a significant barrier, according to the advisers questioned. Most respondents indicate that their clients have only some understanding of ESG, and the assumed level of client understanding has fallen since last year.

“It’s clear that while interest in ESG investing is at an all time high and, as a topic, is fuelling many conversations between adviser and client, the industry needs to do more to shape understanding and provide relevant information. While the industry has taken great strides in recent years, client and adviser understanding of ESG investing is preventing greater adoption of ESG investing and the market needs to provide more education and information that is accessible and easy to understand in order to support this interest.”

Christoph Dreher, Head of ESG Product Group at FE fundinfo

Sourcing ESG information

As a result, many advisers are resorting to their own methods in which to source the information they need to help their clients. When asked what their main source of ESG information was, just under half (49%) of advisers said they used multiple third party sources, 21% used information provided by fund groups, 15% use quantitative ESG ratings, while 9% use qualitative ESG ratings. Just 2% meanwhile use national Ecolabels.

On the surface it is great that advisers are conducting their own research into ESG investing and analysing a number of different sources, but perhaps the bigger story is that advisers are having to go to numerous sources to find the information they need. In such a fast-moving industry, where regulations and their requirements are constantly changing it is of course understandable that there is a gap between the information fund managers are required to provide from a compliance point of view and for advisers who are presented with reams of information which might not necessarily be of value for their clients.

Christoph Dreher

Positive outlook for ESG among advisers

Nonetheless, the Financial Adviser Survey found that broadly, the outlook for ESG investing is largely positive among financial advisers. Despite market conditions rotating away from the Covid-19 economy, where many ESG funds soared, 66% of advisers are now investing more client money into ESG propositions than they were last year, while 33% of advisers now consider themselves ‘active’ promoters of ESG funds, up 6% from the previous year.

The 2022 Financial Adviser Survey was conducted in November and December 2021. It consisted of 60 questions and was completed by over 200 UK-based financial advisers.

Download the 2022 Financial Adviser Survey