Does ESG represent the future of advice? Square Mile Research singles out Liontrust and Royal London for strongest ESG messaging

  • Covid-19 has led to greater interest in ESG/Responsible Investment 
  • ESG should be integral to the culture at a company rather than a product level 
  • Liontrust and Royal London again singled out as having best messaging on their ESG strategy 

Research released by Square Mile Investment Consulting and Research (Square Mile) has found that financial advisers believe ESG, responsible, sustainable or impact investing will dominate their new business development within three years. 41.7% of advisers responding to a recent survey* felt that over half of new clients will seek to invest in this way while fewer than four per cent believe advising on ESG and Responsible investment will account for less than ten per cent of their new business.

A comparison with a similar survey conducted by Square Mile at the beginning of 2020 supports this view that ESG and Responsible investment is a rapidly growing trend.  In Q1, around one fifth of respondents estimated that over 50% of their clients would wish to invest in a portfolio with an ESG or positive impact steer; however, by Q4 2020 over a third felt that this was the case.

While interest in ESG and Responsible investment has grown considerably in recent years, the research found that Covid-19 has acted as a catalyst for greater take up of strategies that adhere to these approaches.  67.7% of those advisers surveyed believe the pandemic has led to investors placing a greater importance on the potential of doing good with their money, with 39.2% stating that their clients have a particular interest in environmentally focussed investment.

The research also demonstrates a greater appreciation of the financial potential of ESG and Responsible investment.  Over three quarters of respondents stated that their clients do not believe returns are sacrificed by investing in this way, although only six per cent feel they will be comfortable with any greater volatility.

Despite this increased client interest, fewer than half of advisers (48.2%) surveyed have integrated ESG into their Centralised Investment Propositions or included a specific question in their Attitude to Risk Questionnaire (43.4%).  And while most advisers feel they have a good understanding of changing regulatory requirements surrounding Responsible investment, they indicated a need for greater guidance on these obligations as well as compliance from asset managers.

The survey also highlighted the view that ESG should be integral to the culture of an asset manager.  Over three quarters (79.8%) stated ESG should start at a company level, rather than be used as an opportunistic product push.  As in Q1 2020, Liontrust and Royal London were seen as market leaders in conveying their messaging on their ESG strategies, but advisers still feel that they require greater transparency surrounding methodologies and fund holding information from fund groups in general.  They also expressed an interest in a greater availability of mixed asset and equity strategies with responsible and sustainable mandates.

Steve Kenny, Square Mile’s Commercial Director, said, “Our two surveys conducted during the first and last quarters of 2020 demonstrate considerable progress in the acceptance of ESG and Responsible investment as compelling propositions for advisers and their clients. This has no doubt been driven by a number of factors.  Clearly, there has been significant media interest in Responsible investment and the strong performance of many strategies in this space has led to the realisation that to invest sustainably does not come at the cost of financial performance.  Significantly, our survey suggests that the tragic human and societal impact of the Covid-19 pandemic has galvanised investors’ desire to use their money to help create a more equitable and sustainable world.

“Encouragingly, there is evidence of a greater understanding of the terminology used to describe sustainable and responsible investment among financial advisers.  In Q1, 63.2% felt comfortable with the phraseology used, rising to 77.1% by the final quarter of 2020.  Nonetheless, complexity and a lack of information from asset managers still remain a barrier to greater uptake.  All in all, it is heartening that as 2020 drew to a close, most advisers (69.6%) felt optimistic about the prospect for their businesses in the coming year with none claiming to be concerned.”

Featured News

This Week’s Most Read

  • Price of scarcity: Central banks are driving large valuation premiums on assets with limited supply

    By Charles-Henry Monchau, CIO at Syz Bank It is important to understand the concept of scarcity to better understand its mechanics and its impact on markets. Scarcity refers to the

  • Why now is the right time to invest in Japan

    By Masakazu Takeda, lead portfolio manager of the Japan Focus All Cap strategy at SPARX Asset Management The issues that have plagued Japan over the years are now at the doorstep of

  • Why high yield bonds could be the next ESG frontier

    By Lila Fekih & Mark Remington, Co-Portfolio Managers of the New Capital Sustainable World High-Yield Bond Fund at EFG Asset Management  Equities have garnered the most attention in the ESG

  • Fundsmith hints at bumpy ride

    Terry Smith’s annual letter to shareholders reports a slight underperformance of the MSCI World Index over one year Despite the value rally, quality stocks outperformed in 2021 Smith says unexpectedly

  • Brooks Macdonald Funds under Management hit £17.3bn

    Brooks Macdonald today publishes an update on its Funds under Management (“FUM”) for its second quarter ended 31 December 2021, together with a Trading Update for the half year. FUM

  • Ninety One appoints Juliana Hansveden

    Hansveden to develop emerging markets sustainable equity capability Ninety One has today announced the appointment of Juliana Hansveden, CFA, as Portfolio Manager, Emerging Markets Sustainable Equity. In this newly created

  • Man GLG’s Atherton: Governance revolution in Japan like the UK in the 80s and 90s

    The ESG-driven corporate governance revolution in Japan is creating investment opportunities similar to those in the UK in the 1980s and 1990s, says Jeff Atherton, manager of the Man GLG

  • US December CPI inflation rises 7% from a year ago

    David Goebel, Investment Strategist at Tilney Smith & Williamson, the wealth management and professional services group, comments on the latest US CPI inflation data: US December headline CPI inflation rose

  • BlackRock launches two new active Climate Action funds

    The BGF Climate Action Multi-Asset Fund and the BGF Climate Action Equity Fund leverage BlackRock’s deep expertise in active sustainable investing with the objective of generating positive environmental impact.  As

Wealth DFM