That headline got your attention, didn’t it? It is a serious question but let me provide some context and all will become clear.
When talking about ESG and sustainability with advisers, two clear themes emerge:
- “My clients aren’t interested in ESG”
- “I know I need to talk about it, but I don’t know how”
Let’s unpack these statements and see what the Financial Conduct Authority has to say.
First, that clients aren’t interested in ESG. This is a valid statement and one that needs to be formally recorded as part of Consumer Duty obligations.
However, in many cases, this outcome is based on an assumption made by the adviser, rather than a fact based on a client being asked the question and supported to make an informed choice.
Herein lies the compliance risk. For a client to answer ‘yes’ or ‘no’ to an ESG question, the adviser needs to demonstrate they have received information on what ESG actually is in order to enable them to make an informed choice.
And what does the FCA think about this statement? Let’s take a look:
- The FCA 2020 Financial Lives Survey found 80% of consumers would like their money to “do some good”.
- The FCA 2022 Financial Lives Survey found ESG issues resonate broadly across all age groups and among adults with pensions or investments, with 62% interested in investing in responsible investments in the future.
- Consumers have different preferences and objectives. Recording these is critical to meet the Consumer Duty.
So, what about that second statement – “I need to talk about it but I don’t know how”? Our advice is not to talk about ESG or sustainability as a separate ‘thing’. When introducing these areas to clients, include them as part of broader ‘preference pathways’.
Client comprehension of ESG or sustainability is higher when they can see how these types of investment relate to conventional investment funds. The spectrum of capital is a client-friendly way of introducing different investment options that can be used to meet client preferences and objectives. This approach will be essential when the sustainable fund labels arrive (likely 2024).
What does the FCA say about discussing sustainable investment in isolation? When including consumer‑facing disclosures for products without a sustainable label, it found increased comprehension of sustainability information compared to when disclosures were provided only for those products with a sustainable label.
Maybe the FCA is onto something after all.
Lee Coates is director at ESG Accord
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