Advisers are feeling “hamstrung” when it comes to offering sustainable investments to their clients and are at risk of greenwashing.
Earlier this month, research by EY found that clients who had sustainable goals were more likely to switch adviser if they felt they were not meeting their goals and 41% felt their wealth manager was failing to understand their values.
Speaking to Money Management, Devin O’Keefe, former private wealth adviser until May 2019 and now sales manager at Octopus, said he found it difficult to offer recommendations on sustainable options.
“As an adviser, you are more hamstrung than ever, you are unable to recommend sustainable options as there is a lack of products in the market,” O’Keefe said. “There are more products now but are they doing what they say?”
Advisers often stuck to advising on what they were familiar with, he said, and what performed well which presented an opportunity to educate them on environmental, social and governance (ESG). If they were using it, it was mostly as a satellite approach rather than being included in the core portfolio.
“The first adviser misconception is that performance won’t stack up against a traditional fund, so it is about convincing advisers that ESG is important,” O’Keefe said.
“Second is that ESG is unknown to them, for advisers, it is easier to recommend what they know, they have lots of choice in the traditional funds that they have been using for years so why would they look elsewhere?”
He said clients also often misunderstood what qualified as a sustainable investment as many sustainable or ESG funds had high weightings to technology names such as Facebook which were driving performance.
“Lots of people are looking at ESG but there are greenwashing funds which might perform well but that’s only because they have a lot of technology,” O’Keefe said.
“Most just exclude tobacco and weapons etc but when you ask the client, they think it is about renewables and climate change and would be unaware that is not the case.”
Octopus was looking to launch a renewable energy opportunities fund later this year which would invest in direct assets specifically focused on renewable energy.