A lack of clear standards and definitions and the risk of greenwashing have been cited as two of the main barriers to financial advisers recommending ESG investments more often to clients.
Despite a growing interest in ESG, 56% of advisers believe the lack of clarity about ESG investment is holding back their growth, a new survey has found.
Research for FE Fundinfo’s Financial Adviser Survey found that 55% of advisers said that ‘greenwashing’ fears were preventing them from promoting ESG funds.
Greenwashing occurs when firms promote funds as meeting ESG criteria but in reality they fail to meet ESG aspirations.
The survey found that the vast majority of advisers (72%) offered ESG propositions to clients, a 7% increase on the past year. Nearly eight in 10 advisers (79%) also said clients were showing a growing interest in ESG investing.
Client understanding of ESG investing is often poor, however, and this is also a “significant barrier” to ESG growth, according to advisers. Most respondents say their clients have only some understanding of ESG and the assumed level of client understanding has fallen since last year.
Christoph Dreher, head of ESG product group at FE fundinfo, said: “It’s clear that while interest in ESG investing is at an all time high and, as a topic, is fuelling many conversations between adviser and client, the industry needs to do more to shape understanding and provide relevant information.
“While the industry has taken great strides in recent years, client and adviser understanding of ESG investing is preventing greater adoption of ESG investing and the market needs to provide more education and information that is accessible and easy to understand in order to support this interest.”
The survey found that many advisers are using their own methods to give clients more information about ESG. Nearly half (49%) said they used multiple third party sources, 21% used information provided by fund groups, 15% use quantitative ESG ratings, while 9% use qualitative ESG ratings. Some 2% meanwhile use national Ecolabels.
While barriers are significant the survey found that in general the outlook for ESG investing was largely positive among financial advisers. Some 66% of advisers are now investing more client money into ESG propositions than they were last year, while 33% of advisers now consider themselves ‘active’ promoters of ESG funds, up 6% from the previous year.
• The 2022 Financial Adviser Survey was conducted in November and December 2021. It consisted of 60 questions and was completed by over 200 UK-based financial advisers. https://www.fefundinfo.com/en-gb/landing-page/adviser-annual-survey-report-2022/