Meeting clients’ ESG demands

There is no doubt that in recent decades Australia, and the world, has been experiencing extreme weather events from months-long bushfires, to flooding, to unprecedented temperature levels.

These events are not only leading to investors deciding to screen their portfolios away from climate-harming investments, but young financial advisers are taking a strong interest in tackling climate change in their client’s portfolios.

Ethical Investment Advisers director and senior authorised representative, Louise Edkins, who has been advising clients solely on ethical investments since 1994, told Money Management that generally it was the planners who were the last to be convinced about ethical investments.

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“Fund managers are out there doing it to different degrees and clients are wanting it,” she said. 

“The person in the middle, being the planner, needs to be on board as well and generally they have been the laggards in this whole concept.

“It’s a great way to engage with clients to get a deeper understanding and connection because you’re talking about values, and not just about the money. The values are sometimes more important than performance, irrespective of what that performance is. 

“All clients from retirees right to the younger generation are all very interested in ethical investment because retirees want their grandchildren to inherit a sustainable planet and the younger generation are signing up online to ethical superannuation platforms with advice, and some of the biggest growth in super is into ethical super funds.”

Edkins, who is part of the Ethical Advisers’ Co-operative, noted that while most advisers were generally looking into environmental, social, and governance (ESG) investing, it was the younger advisers that were taking a stronger interest and interested in joining the co-op. 

The co-op was established in 2011 by advisers who wanted to represent and advocate on behalf of ethical and sustainable investment advice within Australia. 

HH Wealth director and financial adviser, Chris Holme, has recently started investing ethically and said reasons included compliance and his children’s futures.

On the compliance side, Holme said the Financial Advisers Standards and Ethics Authority (FASEA) standards included looking at client’s ethical concerns and to help them invest as per their values. He said he went further than just asking clients the usual questions of if they cared where their money was invested.

Holme said he also queried clients on what their values were on sustainability, if there were areas they wanted to avoid, and used that information to select investments that performed well and were low cost.

At the same time, Holme said he wanted to make a difference through his advice and the amount of media attention on sustainability and climate change had caught his attention.

“I’ve been watching documentaries on climate change and have become more aware and concerned about it. I have two young children and that is a big driving factor as well,” he said.

“In the latest David Attenborough documentary he said in the next 10 years there wouldn’t be a Great Barrier Reef and that completely floored me and I don’t want that to be a reality for my kids. That led me to thinking what can I do about it? And that led me to make it a focus of our business.”

Future Focus Financial Planning principal and adviser, Kevin McDonald, started his business based in the Illawarra 18 months ago and ESG investing they felt was a key offering that was missing in the region.

McDonald said he believed that private capital could create change more effectively than the Government, and that 50% of new business coming into the firm were looking to have their investments responsibly managed. 

Both Edkins and McDonald said their clients’ biggest concerns was on climate change, followed by fossil fuels, sustainability, human rights, and armaments. The bushfire season that ravaged the east coast of Australia in late 2019 and the onset of the COVID-19 pandemic, they said, had pushed home these concerns.


For advisers looking to get into the space, Holme said to start off with getting a more comprehensive fact find. 

“A lot of the fact find material these days just says ‘are you concerned with where you money is going?’. It’s just one question and most people just say ‘no’ or have no idea how to answer it or why they have to answer it,” he said.

“It’s not enough to just have that one. A more comprehensive fact find will ask the areas you want to support and avoid which is a good place to start.”

Holme noted that he was undertaking a course called ‘Foundations in Responsible Investment’ through the Principles of Responsible Investment (PRI) Academy to become a certified Responsible Investments Association Australasia (RIAA) investor. He said the course was “enlightening” and that it completely changed his mindset on ethical investing.

Both Holme and McDonald said seeking out other advisers who had more experience in ethical investing was another tip to learn and gain ideas for this kind of investing. 

“The best resource out there is the Ethical Adviser Co-operative fund ratings page, the next best resource is getting onto the RIAA website where there is an adviser guide to help people understand this space. Those two resources really help you to go from zero to 100,” McDonald said.


Edkins said the main barrier for advisers was not knowing what to do or not knowing which products were good while having a number of clients wanting to invest ethically.

“That’s an educational aspect that the standard financial planner really needs to get up to speed with. You don’t want to provide a recommendation that you think is ethical and when the client looks at it and they see they are invested in Rio Tinto, Santos, and BHP and they are against coal and oil. They won’t be happy with you as an adviser so you need to make sure you know what the product is about,” she said.

Research, Edkins said, was key to providing quality ethical investing advice and to avoid box ticking.

“There are a lot of products out there that have an ethical badge that I wouldn’t invest in and my clients wouldn’t invest in because they don’t reflect their values. It’s important to know what the fund manager invests in and whether that reflects the client’s values,” she said.

“We get research from a number of different places – research that maps to the UN Sustainable Development Goals, from the Ethical Advisers Co-operative website, and RIAA certifies products and advisers.”

Another large barrier for advisers were those who were under a licensee would be limited to choosing ethical products in the approved product list (APL).

“Licensees really put a barrier up for their APLs and there might still be this perception that something that is ethically screened might be a bit fringe or alternative even though over 60% of fund managers do ESG in Australia,” Edkins said.

“It’s nothing new, it’s about accessing climate risk and environmental and social risk of investments. There’s a real risk of investing in companies that are not accessing their climate and environmental risk in the longer term as well as the fact that investing in positive solutions is actually making more money right now and are outperforming standard investments.”

She noted that there needed to be a concerted effort from advisers under licensees to push investments they wanted and for APL committees to include products that were ethical and reflected the needs of clients. 

“A lot of ethical investing is client led – clients are demanding it rather than advisers offering it. Advisers have to come up with a solution to reflect what the client wants,” Edkins said.

Both McDonald and Holme had their businesses under a licensee and needed to obtain one-off approvals for any ethical fund they wanted for their clients. This had to be done for each fund not on the APL even if the fund had been previously approved.

While it was not difficult to get approval, Holme said it was an unnecessary inefficient step and that advisers who wanted to avoid this should think about getting self-licensed. 

“Another issue is that a lot of licensees base their APLs on research houses like Lonsec and Zenith. Our research house is Zenith and it seems like they don’t have the best view on ethical funds and I’m unsure whether it’s because the ethical funds are not paying them to be rated. A lot of the ethical funds are not rated on Zenith which means they’re not on our APL. It’s not an issue for everyone but those things have been barriers,” he said.

McDonald said while this barrier was minor, due to the myriad of changes in the advice industry in general, this issue would often be put in the “too hard basket”. 

“A good thing for us is our conviction in funds we’re recommending and we’re happy to go outside the APL to recommend the ones we think fit the best. For us it’s more platform restrictions because we’re only using a handful at the moment that we are confident we can use and clients can use. As platforms improve what’s accessible then it will enhance what ESG options we can recommend,” he said.

“The area that’s really lacking is diversified portfolio manager of manager type portfolios in the ESG space. There’s some great Australian equity funds, global equity funds, and infrastructure funds but not one that offers an off the shelf diversified option that hits the mark.

“Our solution for now is choosing sector-based funds for clients to allocate across the different asset class and risk profiles.”


All three advisers believed there would be a large amount of money pumped into the sector in the coming years as there were international legislation drivers and current climate change inducing companies pivoting to become more sustainable. 

In the EU and UK there was strong environmental legislation included in the COVID-19 recovery plan, and the new US administration included infrastructure as part of their pandemic recovery.

“There’s a lot of drivers internationally, in international investments that are going to be using legislation to invest in environmental infrastructure. That’s where I see there’s going to be strong demand in drivers and performance in those sectors,” Edkins said.

“Every year fund managers are getting stronger on their reporting, transparency, and with the Paris Agreement and reporting on climate impact in operations of big companies is part of that requirement so there are a lot of companies in Australia that have overseas operations too that are being influenced with under reporting. There’s a lot of carbon reporting in big companies and that will be stronger and more disclosed over time.”

Holme said: “Ideally I’d love to see big companies like BHP and Rio change how they produce energy products, from coal and mining to sustainable products. They’ll be forced to eventually but whether it’s soon enough I don’t know. 

“I think it’s the future and many people now concerned with it and you can see it when the amount of money being pumped into the sector. We’re also now getting really good returns and better returns than unethical funds. Even if people didn’t care about the environment and wanted a good return it’s better now to invest in an ethical fund.”

“Just do it, just get started,” Holme said if advisers were thinking about including ethical investing into their offering. 

“I was worried about what to do at the beginning but there’s not many areas where you can go wrong. You’re doing the ethical thing by actually making more of a commitment to your client to help them where they invest their money.”  

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