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Lack of standards and definitions harms promotion of ESG investing

A lack of clear standards and definitions, as well as the potential for greenwashing, are the two primary industry barriers preventing financial advisers from promoting ESG investing further to their clients, according to FE fundinfo’s new Financial Adviser Survey.

The 2022 survey, which was completed by more than 200 UK-based financial advisers towards the end of 2021, finds that 56 per cent of advisers believe a lack of clarity regarding what ESG investing actually encompasses is preventing its further adoption.

Similarly, 55 per cent say fears of greenwashing discourage advisers from promoting ESG funds.

This is despite both an increasing client interest and a higher range of ESG investment options available, with 72 per cent of respondents now offering some form of ESG proposition to clients, marking a 7 per cent increase compared to the previous year.

Commenting on the survey results, Christoph Dreher, head of ESG product group at FE fundinfo, says: “It is 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.”

This has caused many advisers to develop their own methods to source the information they need for their clients, says FE fundinfo, with 49 per cent of respondents using multiple third-party sources for their ESG information.

In addition, 21 per cent use information provided by fund groups, and just 2 per cent employ national ecolabels.

Dreher adds: “On the surface, it is great that advisers are conducting their own research into ESG investing and analysing a number of different sources, but perhaps the bigger story is that advisers are having to go to numerous sources to find the information they need.

“In such a fast-moving industry, where regulations and their requirements are constantly changing, it is of course understandable that there is a gap between the information fund managers are required to provide from a compliance point of view, and for advisers who are presented with reams of information which might not necessarily be of value for their clients.”

The 2022 survey concludes on a positive note, with 66 per cent of advisers now investing more client money into ESG propositions compared to last year, while 33 per cent of advisers consider themselves “active” promoters of ESG funds — a 6 per cent increase from the previous year.