View more on these topics

Industry welcomes proposed mandatory ESG criteria for advice

Advisers and other professionals giving investment advice may end up being required to consider their clients’ environmental, social and governance preferences. European Commission is seeking to amend MiFID II and the Insurance Distribution Directive to make it mandatory for advisers to prove they consider these issues in their suitability assessment.

Advisers who had been providing advice on values-based investing as well as experts in the area welcome the move which they see as long over-due. Here are their recommendations for how to prepare for a change in the rules.

Advisers view: Lee Coates

All clients would hope that governance has always been done properly.  Most fund managers nowadays will say that they take ESG into account, but I fear that this is possibly 95 per cent on the ‘G’ and the rest on the ‘ES’.  If I am right, many fund groups will struggle to demonstrate just what they are doing on the E and the S.

For advisers, I am not sure too much needs to be done other than to be up to speed on the sorts of issues that the fund groups are dealing with.  Whilst advisers are not going to be forced into an epiphany moment and embrace ethical and responsible investment, the forced reporting on ESG should actually allow advisers to handle any questions that relate to climate change or social issues.  Something along the lines of…”the fund managers have to make allowance for this sort of thing and it is on them to make sure that you aren’t going to lose money because they are investing in old, dying industries.”

Lee Coates is Managing Director at Ethical Investors

Expert view: Julia Dreblow

“This is a welcome, if over-due development. For approaching two decades research has indicated that many more people would like to bring environmental, social or indeed ethical considerations into their investment planning than actually do so.

Although many intermediaries are already successful in this area – many, until recently, have assumed that if a client is interested in such issues they will request it. Poor financial literacy and low awareness has however in practice meant that this does not often happen.

The main challenges for making these proposals a success will be around advisers having the confidence and competence to change the way they operate – so that when a client indicate an interest the adviser can act on it. This means adapting advice processes and being able to discuss ‘ethically diverse’ fund options.

The increased interest in and urgency of climate related risk in particular mean that upskilling in this area will prove valuable as it will help advisers to forge closer relationships with their clients whilst also helping to de-risk their portfolios – and exploit growing ‘green’ opportunities.

Advisers and other intermediaries are invited to use our whole of market, free to use Fund EcoMarket tool for information on fund strategies as well as fact finding.”

Julia Dreblow is a founder at Ethical consultancy SRI Services

Adviser View: Chris Welsford

“We very much welcome the EU proposals as they recognise and support the vital role that capital markets are playing in achieving the U N Sustainable Development Goals. This is particularly important given the slow response of governments to the existential threat presented by continued fossil fuel use, the resulting environmental destruction and global warming, which the SDGs are designed to help address.

“However it is important that advisers, new to this area, understand that sustainable investing and ethical investing are not always the same thing, particularly in terms of the know your client rules. We should be asking questions about our clients’ ethical views as these help us to know our clients and enable us to factor these views into our advice.

“Otherwise we cannot demonstrate suitability. Those views will almost certainly be represented by some of the Sustainable Development Goals but as the EU proposal seems to be saying, each client will have a different personal perspective, which reflects the individual nature of ethics and, dare I say it, religion. Without this information you can’t know your client. Building sustainable investment portfolios is something different to that.

“That’s about recognising the value of ESG momentum and sustainability in delivering investment outperformance. That should be employed in our investment process regardless of clients’ ethical views. Thorough ESG analysis is also an absolutely essential part of understanding and hopefully controlling investment risk.”

Chris Welsford is a Managing Partner at Ayres Punchard Investment Management

Expert view: Gavin Francis

“This is welcome as it provides the market with a strong signal and clarity in an area which many advisers have been exploring led by investor demand. It will require advisers to develop a framework to understand interested investor objectives, communicate the aligned opportunities and report ongoing outcomes. This will require resource.

“The ability to access trusted sources listing a comprehensive range of these investments enabling advisers to compare using consistent and decision useful criteria is an essential to ensure implementation is manageable and cost effective.

“We analyse data on almost 250 UK retail funds on the impact investment spectrum, this has increased by 56 per cent over the last 5 years.”

Gavin Francis is a founder and Director at Worthstone

Recommended

2

How to become a financial adviser: diplomas, degrees and workplaces

Information on how to become a financial adviser is sparse. Money Marketing speaks to advisers about what the requirements really are and how best to meet them. Speaking to financial advisers and planners today, each will have a unique and varied story about how they entered the profession. There are more than a handful of pathways […]

‘Fat Cat Friday’ brings new chance of investor rebellion

Investment experts have warned companies need to keep an eye on executive pay or face further shareholder rebellion as FTSE100 companies hit “Fat Cat Friday” today. By this afternoon, the average FTSE chief executive will have earned more than an average Brit will in the whole of 2019. Analysis from independent think tank the High […]

Rules on mandatory ESG integration proposed for advice

The European Commission has published draft rules on how to incorporate environmental, social and governance preferences into investment advice. The proposed regulations seeks to make integration of clients’ ESG preferences mandatory for those providing investment advice. The European Commission first revealed its intention to make it mandatory to inquire about the clients ESG preferences in March […]

What did we learn from Lehman?

James Dowey, Chief Economist & CIO, Neptune Investment Management Above all, we learned that we can’t leave finance to its own devices. As Joseph Stiglitz said: “Now we know why the invisible hand is invisible. It’s because it isn’t there.” Read more Investment risks The value of an investment and any income from it can […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. what next, we must consider Vegan issues . . .

    I think the large majority of advisers will ask their clients what are their ethical views with regarding how their money is invested, but do we really need to ask more than this?

    If the client wishes to invest ethically, then of course more fact finding should take place to ensure that their views/wishes are taken into account and the investment solution/recommendation meets their criteria . . .

  2. […] Advisers and other professionals giving investment advice may end up being required to consider their clients’ environmental, social and governance preferences. The European Commission is seeking to amend the Markets in Financial Instruments Directive (MiFID) II and the Insurance Distribution Directive to make it mandatory for advisers to prove they consider these issues in their suitability assessment. Advisers who had been providing advice on values-based investing as well as experts in the area welcome the move which they see as long over-due. Managing Director at Ethical Investors, Lee Coates said, “Most fund managers nowadays will say that they take ESG into account, but I fear that this is possibly 95 per cent on the ‘G’ and the rest on the ‘ES’.  If I am right, many fund groups will struggle to demonstrate just what they are doing on the E and the S.” (Money Marketing) […]

Leave a comment

Close

Why register with Money Marketing ?

Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Money Marketing Events
Be the first to hear about our industry leading conferences, awards, roundtables and more.

Research and insight
Take part in and see the results of Money Marketing's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now

Having problems?

Contact us on +44 (0)20 7292 3712

Lines are open Monday to Friday 9:00am -5.00pm

Email: customerservices@moneymarketing.com