Many industry experts are now considering ESG investment as a mainstream strategy and approach - quite a rapid change that has certainly been accelerated by the events of 2020. By Paul Stanfield
I recently wrote about the first two weeks of our Autumn Conference Series, and focused on two main themes that were highlighted in the four webinars; namely trust and technology. In the following two weeks, one of the main threads that ran through the events was ESG and Sustainability.
The first webinar in the second half of the Series, and the fifth in total at that stage, saw Fidelity contest that: "There is no economy without water, no sustainable economy without waste management". Following that, "The four pillars to sustainable investing" were examined by Janus Henderson Investors.
These presentations highlighted a thread that began to run throughout the events: namely, that a combination of regulation and consumer demand is simply making ESG investing mainstream. It is no longer about ESG or "traditional" strategies, the principles behind the latter now need to be overlain with considerations about the former - always!
Speakers generally felt that covid-19 was not a key long-term driver in itself, in the same way as these two factors, but it has significantly accelerated the direction of travel with regards to such matters.
Later in the event series, Tilney pointed out that there was a raft of new regulations concerning sustainable investing that would impact the financial services sector in the near future. The
EU Sustainable Finance Disclosure Regulations (SFDR) is due to "kick things off" in the EU of course, as early as March 2021! Aspects such as the MiFID II ESG factors and EU Taxonomy Regulation are obviously going to speed the regulatory impact of sustainability concerns and processes, as next year progresses.
But this is not just about financial regulations, as was highlighted in that webinar. The UN has its 17 Sustainable Development Goals of course, as well as its Global Compact Principles and also the Principles for Responsible Investment (PRI). That's before we even consider the Paris Agreement on Climate Change.
In addition, there are numerous national projects now progressing - for example, the UK Stewardship Code. The UN and associated developments, along with such state-based initiatives, are ensuring that this is very much a global phenomenon.
The perfect storm
As I have previously written, the next decade will see the largest transfer of wealth between generations ever seen (certainly in the western world). When this is combined with survey data that suggests around two-thirds of clients' children are unlikely to take on their parent's financial adviser - and the fact that those offspring are likely to be even more "ESG sensitive" - the importance of ESG and sustainability knowledge and understanding for advisers becomes blatantly apparent.
To survive as a professional financial adviser or planner in the future it would seem that a strong appreciation of the sustainability desires and demands of consumers will be a pre-requisite, as will an ability to match those with relevant and robust ESG-friendly investment solutions. The demands of "Suitability" are going to expand dramatically.
As an adviser, if you're not at that point yet, I would definitely suggest you should aim to get there very quickly.
Paul Stanfield is CEO of FEIFA