The Value of ESG in Today’s Adviser World

Commissioned by Rathbones |
Researched by Core Data Research

Welcome to the final instalment in our 3-part series featuring Rathbones’ new research on advisers and ESG investing. Even the skeptics now acknowledge the value that ESG contributes. Yet, a majority of advisers report that it is not fully integrated into their businesses and significant knowledge gaps remain.
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Part 3: How prepared are advisers for ESG as the mainstream?

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How prepared are advisers for ESG becoming business as usual?

While this study provides a groundswell of evidence that advisers believe root-and-branch ESG integration is the imminent future, it also shows many advisers do not appear to be ready for this.

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As you’d expect, ESG advisers are better prepared. 34% of them cite ESG is already fully integrated into their business, compared with just 2% of non-ESG advisers.

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of non-ESG advisers say ESG is fully integrated into their business

Further probing the two groups’ readiness, only just over one in three (38%) of non-ESG advisers currently has processes in place that would enable them to deal with a rapid increase in client interest, contrasting sharply with almost two in three (62%) from the ESG adviser group.

Figure 10: To what extent do you agree with the following statement?

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Significant gaps in knowledge

The research reveals significant gaps in non-ESG advisers’ understanding, with fewer than one in three (30%) of this group saying they have a strong understanding of ESG/ethical/sustainable/green investing. Less than half that of the ESG group of advisers (68%).

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Yet gaps in knowledge are evident in both groups. One in four (26%) of non-ESG advisers said they understood the difference between ethical, sustainable, ESG and impact investing, but did not know how to apply them. This dropped to 14% within the more thematically experienced ESG group. A worrying 13% of the combined groups wrongly felt that the terms were interchangeable.

And a combination of continuing professional development (CPD) and adviser support is undeniably required, with just three in ten (30%) of the non-ESG group claiming they have a strong understanding of ESG/ethical/sustainable/green investing. 40% of this same group then expressed that they need more support on introducing ESG investing to their clients, be that from providers, industry CPD or other channels.

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For both groups, working with specialist partners provided a potential solution for specific ESG roles. Over half (58%) of non-ESG advisers said they would consider partnering for centralised propositions, 44% for discretionary fund managers and 42% for fund investment. This rose to 72%, 62% and 44% for the ESG group.

While the tipping point for ESG investing is long past, advisers and providers need to do considerably more to inform and prepare themselves.

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Figure 11: To what extent do you agree with the following statement?

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Figure 12: Which of the following holds true for you?

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Conclusion

We commissioned ‘The value of ESG’ to build insight into the effect adviser adoption of ESG is having on their businesses over time. Dividing advisers into two differing levels of historic adoption, allowed us to objectively define the business value that the research shows has been created.

The findings of the study make many things glaringly obvious. While some advisers were historically naysayers about ESG as a fad, or sceptical about its investment performance, there has been a sea change in thinking, with adopters and low adopters alike now recognising ESG strategies’ ability to deliver for their clients.

Client conversations about ESG investing appear to have become business as usual and normalised, with just 3% of advisers saying they don’t talk to their clients about ESG.

And while we set out to explore ESG adoption’s business value for advisers, the report demonstrates this reality time and time again. In ways as diverse as the speed of business growth, extended client tenure and client engagement.

Advisers of all allocation levels recognise that the tipping point is past. 94% of ‘non-ESG’ advisers recognise “business and society are changing, ensuring ESG factors become increasingly important to investment performance”.

Yet more needs to be done. The study reveals significant gaps in many advisers’ knowledge of ESG strategies and products, and how to properly align them with client investment objectives. Adviser businesses – and providers – need to work closely together to overcome this, and better explain the value of ESG to their end clients.

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