Over 80 per cent of IFAs have a very positive view of the importance of ESG in portfolio construction, according to a new study by Foresight Group LLP, an independent infrastructure and private equity investment manager.
The research, conducted among over 100 IFAs, revealed that: 80 per cent now say it is important when building client portfolios, including 28 per cent who say it is ‘very important’. These figures represent a significant step change versus last year, when 65 per cent described this as important.
UK retail investors also seem to be adopting the same stance, albeit more gradually. 12 per cent of IFAs say that over half of their clients now express a preference for ESG investing, compared to 9 per cent in 2020. Financial intermediaries remain conscious of their role in the move towards sustainable investing however, with 45 per cent of respondents saying that educations sessions would encourage them to suggest ESG funds more frequently to clients.
Moreover, respondents expect that over half of their clients will be invested in portfolios in which ESG is a core component in an average of about 4.7 years.
In terms of delivering advice and selecting suitable ESG strategies for clients, the greatest challenge is the lack of an industry-wide definition of ESG investing, according to 49 per cent of advisers. The lack of an industry-wide gold standard for ESG criteria and a lack of transparency when reporting ESG activity were also each cited by 20 per cent of respondents.
New regulation introduced this year forms part of the EU’s overall ‘Green Deal’ to make the economy sustainable. Whilst it is only applicable to EU funds at present, it does provide a useful backdrop to creating green financial products. Most IFAs (62 per cent) are unconcerned about the impact of the new regulation on ESG fund portfolios, with 38 per cent expressing some concerns.
One asset class with significant sustainability implications is real estate. A significant minority (33 per cent) of IFAs in the research are seeing an increase in appetite for ‘sustainable’ real estate.
The most popular reason for this is the wish to support companies that are speeding up the adoption of sustainable practices, which was cited by 78 per cent of those IFAs who are seeing such an increase. One third of this group (33 per cent) also cite sustainable real estate’s potential to deliver returns that are uncorrelated to global equity markets and 19 per cent credit it to the resilient, consistent yields of the asset class.
From an investment viewpoint, real estate offers reliable, inflation-adjusted returns, including steady rental income, which is highly sought by investors in a world dominated by lower for longer interest rates.
Mark Brennan, Partner at Foresight Capital Management, says: “We are enthused to see that IFAs are increasingly open to joining the global movement towards sustainable investing. Major steps forward have been taken this year in helping companies and investors define what qualifies as a sustainable economic activity or investment, although the investment industry is still some way from providing standard definitions. At Foresight we pride ourselves on being a sustainability-led investment manager, and we are certainly prepared to take on responsibility in helping the investment industry to shape sustainable investing in the future.”
