Advisers increasingly positive on ESG returns

More advisers understand investing sustainably does not mean a compromise on returns, research by Square Mile found

UK advisers are increasingly leaving behind the belief that investing sustainably does not mean a compromise on returns, research by Square Mile.

Some 87% of respondents to a survey said investing sustainably does not mean a sacrifice of clients’ financial returns – this was up from 76% in 2020. Additionally, 61% said their clients would be willing to put up with some underperformance as long as their responsible investment objectives are met.

This trend does not show signs of stopping either, as 42% of advisers indicated half of new business will be focused on responsible principles within the next three years, with 60% claiming that at least a quarter of their clients currently want to be invested in responsible strategies.

Adviser stance

Square Mile also found advisers are increasingly integrating responsible investment into their business models and processes, as well as their investment solutions.

See also: – Are financial advisers reigniting the ESG spark?

More than half (55%) have added questions on client attitudes on their risk questionnaires, while 57% embedded responsible factors into their centralised investment proposition.

Advisers have also recognised the rise of very specific themes clients want to be aligned with when it comes to investing responsibly, which includes climate change, fossil fuels and tobacco.

When asked about preferred providers, advisers revealed Liontrust (25%) and Royal London (11%) as the standout fund groups.

But there are still barriers to investing responsibly, as 57% of advisers reported it was too complex, followed by a lack of information, including the need for a taxonomy and clarity on what terminology to use.

Need for consistency

Steve Kenny (pictured), chief distribution officer at Square Mile, said: “It is encouraging to see that most advisers now recognise that choosing between doing good for the planet and society and making financial returns is not a binary decision.

“It is also interesting to note that these findings come at a time when a combination of factors are creating performance headwinds for many responsible investment funds, following a strong run over recent years.

“Of course, investment is a long-term game, and the businesses which responsible investments typically back will form part of a more sustainable future, while those they exclude will either evolve or die away. This creates a clear alignment between investing responsibly and benefiting from the trends shaping the world of tomorrow.

“The fact that most advisers are now using responsible investment as part of their suitability fact finds and embracing it as part of their investment propositions would suggest that they have a good understanding of the direction of future regulatory requirements.

“At the same time, the application of a more consistent taxonomy surrounding this approach to investment will be an important step in removing a cause for confusion among advisers and their clients.”

This article first appeared on ESG Clarity‘s sister title International Adviser.