Financial advisers are crucial in helping clients understand sustainable investing

We need to do better to empower the gatekeepers of a sustainable system

Rebecca Kowalski, company director, Overstory Finance

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Rebecca Kowalski, director, Overstory

Many advice firms remain confused about the “art of sustainable investment”. Building sustainability into their advice is more difficult than it should be.

Hopefully, regulation and industry momentum will rectify this in time. We all know, however, that time is most definitely of the essence.

If clients want to retire into and travel around a stable, thriving world in future, then how we apply their investments now is pivotal.

The financial adviser is crucial in helping investors understand the potential power of their money, the momentum behind investing sustainably and the multiple risks of not doing so. 

The adviser skillset is a huge asset to bring to the transition table. Their ability to manage complexity, to help clients plan ahead and offer solutions to life’s big curveballs is a tool perfectly suited to the task in hand.

It’s not easy though, making the potentially thorny subject of climate breakdown and systems overload relatable to clients.

There are a few frustrating but removeable barriers currently hindering advisers’ ability to deliver.

The first is the need to start with the basics. Before offering the client a shiny new sustainable investment, how do advisers explain to clients the position of their existing investments?

How much of the portfolio is old, extractive economy and how much is already (possibly with no fuss and no label) invested in the green and the getting there?

With one or two notable exceptions, there has been little focus by the industry on this area.

Advisers who have long established businesses, who pride themselves on their investment services and solutions, are not going to turn up at the 2023 review meeting and say “rip that up, we are going full sustainable-mode now”.  

There is software available to help with analysis and comparison, but this is often additional to the kit the adviser has already integrated into their business and has a substantial price tag.

Some advisers turn to ESG and sustainability fund ratings to give them a steer and I welcome the FCA’s intended Code of Conduct in this area.

I hope it will consider the needs of advisers and the significant risks and friction arising from a lack of understanding of what the ratings actually mean.

This is clearly a potential source of the greenwashing that the Sustainability Disclosure Requirements is keen to address.

I would encourage consultants, product and data providers to join me in helping advisers understand where their clients currently rest and where they might want to get to.

The journey is very different, depending on the starting point.

Kicking over the barriers

Another key area to concentrate on is helping advisers understand and communicate how, and how much, sustainable investing makes a difference.

Some clients might even say, “I’d  settle for a return of x% less a year, if I knew that it would mean my future or my children’s future looks like A, not B.”

Not that, of course, investing sustainably requires a lower long-term return, but let’s get everyone over 2022.

We have stories about windfarms, cars taken off the road and kids provided with education but the links between the £’s going in and concrete real-world outcomes are not always the clearest.

Believe me, I have hunted through many brochures, articles and webinars seeking that clarity.  

We debate issues at conferences and round tables – divest, engage, labels good, labels bad, terminology and materiality.

As we file out to the drinks reception though, have we achieved anything today that will make enough impact?

Let’s expect more of ourselves, concentrate on kicking over the barriers and collaborating to do so.

Sustainable services and sustainable products require a sustainable system, and we need to do better to empower its gatekeepers.

In an ideal world, we need advisers to be able to relate the benefits of sustainable investment to clients with the same competence and confidence they display when reeling off the benefits of saving into a pension. So let’s get to work.

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