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Advisers recognise that responsible investment does not compromise returns

  • 42% of advisers believe over half of future new business will be driven by Responsible Investment 
  • Most advisers now incorporating RI into ATRQ and CIP 
  • Tackling climate change and avoiding fossil fuels popular among investors 
  • Liontrust and Royal London remain groups most associated with Responsible Investment

New research released today from Square Mile into attitudes towards Responsible Investment among financial advisers indicates that most – some 87% – believe that investing in this way does not compromise financial returns, up from 76% in Q4 2020.  Moreover, 61% of the respondents stated that they had clients who would be comfortable with some underperformance in order to achieve their RI objectives.   

This greater acceptance of Responsible Investment as a credible means of securing a financial return while making a positive impact on society and the environment is reflected in the number of advisers who feel it will become an increasingly important element of their business.  42% of those surveyed believe that more than half of their new business will be RI-focussed in three years’ time, with 60% suggesting that at least a quarter of their clients currently want to invest in Responsible strategies, up from 40% in Q4 2020.

The research also highlighted a steady increase in advisers integrating Responsible Investment into their business models.  The majority (55%) indicated they had added questions relating specifically to RI to their attitude to risk questionnaire, up from 43% in Q1 2020, while 57% have embedded RI into their centralised investment proposition, an increase from 48% over the same period.

Over half (54%) of advisers responding to the survey felt that their clients want to align their investments with specific themes, of which climate change was the most popular at 37.5%.  There is also a strong desire to avoid certain companies and sectors: 76% indicated that their clients expected certain exclusions to be in place, with fossil fuels being the most common (41%) followed by companies manufacturing addictive products, such as tobacco (27%).

When asked which fund groups standout in the field of Responsible Investment, Liontrust was the most frequently mentioned at 25%, followed by Royal London at 11%.  Their experience and longevity in investing responsibly (38%) was most often cited as influencing this perception, followed by the range of funds on offer.  Performance was much less of a consideration, accounting for only 17%.

Despite this greater interest in Responsible Investment, barriers persist with 57% stating that complexity was the principal of these, up from 32% in Q4 2020, potentially reflecting the much wider range of strategies which have come to market since then.  Meanwhile, just under a quarter felt a lack of information was hindering take up. This need for information accounts for the strong demand for independent research and ratings with 69% of respondents stating that this was influential when selecting funds or fund groups.

There is still some split on terminology applied to Responsible Investment with ESG, Sustainable and Responsible being most frequently used at 32%, 29% and 21% respectively, demonstrating the need for a more consistently applied taxonomy.  Interestingly, terms historically associated with Responsible Investment – both Green and Ethical – were only used by 5% of the advisers. Terminology aside, advisers indicated that more work was required in applying more consistent requirements and frameworks (38%) and creating greater transparency (23%).

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.” 

To view an executive summary of the key findings of Square Mile’s research, please see HERE.

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