Over the past couple of years, it seems that hardly a day has gone by without another announcement, initiative or survey relating to environmental, social and governance investing.
And then there are the fund launches, relaunches and rebrands.
Alongside this are statistics highlighting the ever-growing percentages of potential and existing investors who are surveyed.
They state, invariably, that they would wish their savings, pensions, investments and banks accounts to both avoid doing harm and also support companies doing good.
The Financial Conduct Authority commissioned research into this subject and found more than 70 per cent of respondents wished to avoid harm with their money, and similarly higher numbers wish to encourage positive investment.
As a result, it has pledged to work on an ESG strategy (see the image, below) to help these investors, who have stated a desire to invest into sustainable funds and sustainable companies.
But an ESG fund will only match these chosen outcomes if it applies an approach that considers these issues, and ESG data in isolation will not achieve it.
What does ESG data do?
At this point it is probably worth explaining what ESG data does and does not do; as Sustainalytics, a major data provider in the field states, “take a coherent and consistent approach to assessing financially material risks with our ESG data, research and ratings”.
There is of course every chance that there is a link between financial risk and sustainability, whether the latter relates to any part of the E, S & G.
But what is not assessed is the ethical and sustainability characteristics of the company in question.
To underline this point, in May 2022, billionaire Elon Musk tweeted: “Exxon is rated top 10 best in world for ESG by S&P 500, while Tesla does not make the list”.
However one feels about Tesla or, indeed, any particular stock, it is an unexpected outcome that could easily lead to some confusion, especially among clients with a leaning towards sustainability.
This is not an isolated case: there are a whole raft of instances where, for example, a major arms or tobacco company achieves a higher ESG score from ratings agencies than a small biotech company that produces a life-changing medical device.
Beware of the data.
What do clients want from advisers?
So, what do clients who have expressed an interest in avoidance, encouragement or even both, want from their adviser?
Firstly, dare I be so bold as to suggest that they would like to be asked?
The awareness of the existence of ethical and sustainable savings, pensions and investments is incredibly low (in the region of 10 per cent of people surveyed by Scottish Widows).
So 70 per cent-ish plus, when asked by the FCA, want it, but only 10 per cent or so know that it exists.
Yet I continue to hear advisers stating “my clients don’t ask for ethical/sustainable/ESG options”. How, I always wonder, can anyone ask for something that they do not know exists?
