Financial advisers expect the proportion of ESG investments they recommend to rise to 48% of total investment recommendations in the next five years, according to a new report.
ESG investments currently make up 19% of current investment recommendations by financial advisers, according to the report from financial services consultancy the lang cat.
Three quarters of advisers surveyed by the consultancy had some degree of ‘process’ on ESG at the fact-finding and suitability discussion stages and 23% said they were actively constructing a process now.
Over three quarters (80%) of advisers surveyed said confusing terminology was hampering the ESG selection process.
Over two fifths (44%) of advisers said they do not have the tools or materials available to them at present to properly assess ESG solutions for their clients.
According to over half (60%) of the advisers surveyed, asset managers should transition to ESG factor assessment as standard.
Steven Nelson, insight director at the lang cat, said: “As public awareness of ESG values increases, much of the manufacturing side of financial services has gone straight to product mode without fully understanding the underlying issues or the views of the people that matter – customers and their financial advisers.
“The result is a plethora of investment solutions branded ESG but with conflating terminology, making it torturously difficult for advisers to make an informed comparison.
“In addition, the advice sector continues to evolve towards a consultative, life-coaching, objective-oriented environment, focussed on the client rather than the product. The potential for future regulation to mandate the measurement and implementation of individual sustainability beliefs could create an unmanageable situation for advisers without a step back to product-centric recommendations.
“To shift ESG investing into the mainstream while maintaining a client-centred approach, the onus must be on institutional investors and asset managers to include environmental, social and governance factors in their normal investment process, so effectively we can all become ESG investors.”