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IFAs want additional ratings to cater for client interest in ESG, says HSBC GAM research

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Research conducted by HSBC Global Asset Management has found that sustainable investment continues to be in demand.

The study, which surveyed 204 UK IFAs, discovered that interest in social concerns, such as diversity, human rights, consumer protection, and animal welfare is the main reason for client demand for investments explicitly incorporating ESG issues. One in five (28 per cent) IFAs believe interest is due to a combination of factors, rather than a single reason. However, IFAs still want more information, with 57 per cent saying they would like more product ratings.
 
The research found that only 13 per cent of IFAs think that the current ratings available for ESG products are sufficient. When asked if they think there is enough information in the market when it comes to ratings of ESG products, over half of IFAs surveyed (57 per cent) say they would like a greater supply of ratings.
 
ESG implementation varies by investment manager and it can be difficult for IFAs and their clients to tell which products have more robust sustainable investment approaches. With many investors looking at aligning investments to their personal values, the ability for IFAs to demonstrate which products do so most rigorously is crucial.
 
Amongst IFAs who said that they have seen less or no change in demand over the past year, only 9 per cent stated that investing in an ESG strategy might mean sacrificing returns, demonstrating that the vast majority of IFAs believe that ESG strategies are good investment opportunities that can help meet client objectives.
 
A limited understanding of ESG issues and the potential long term impact on investment portfolios is the single main reason impacting client demand for ESG products (34 per cent), according to survey respondents. The impact ESG issues have on portfolios can be substantial. As an example, research by Mercer2 looking at a 40-year time horizon found that the risks associated with climate change are estimated to result in a return loss of 0.82 per cent per year for developed equities. This means issues such as climate change are no longer just a potential investment risk in the distant future – it is already one today.
 
According to one third (33 per cent) of IFAs, increased interest in social concerns, such as diversity, human rights, consumer protection, and animal welfare is the main reason for increased ESG demand. However, one in five (28 per cent) IFAs believe the interest is due to a combination of factors, rather than a single reason.
 
Daniel Rudd, Head of UK Wholesale, HSBC Global Asset Management, says: “Investor interest in ESG issues continues to grow rapidly. However, what we’ve found is a considerable lack of information to adequately explain these issues and their impact on companies and in turn, investments. Given the complex and diverse ways of implementing ESG, it can be difficult for financial advisers to effectively inform their clients without detailed information and robust ratings.”
 
“Our research shows that there is a significant opportunity to better equip IFAs. We will continue to strive to educate our clients and the markets about the relevance of ESG to long-term economic performance and the sustainability of the financial system.”

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