ESG uptake hindered by lack of risk-rated funds

ESG Tribeca Financial risk profile

24 May 2023
| By Laura Dew |
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The lack of risk-rated environmental, social and governance (ESG) funds is a hindrance to their uptake by financial advisers, according to an adviser.

Nathan Fradley, senior adviser at Tribeca Financial and director at data firm Ethos, said the ability to match a client’s risk profile with the investment was a crucial part of the financial advice conversation. 

If this was not achievable within an ESG framework, he said, it could be a deterrent to their usage.

He said: “There is a lack of asset allocation-aligned ESG funds. If you look at the marketplace, with non-ethical funds, there are growth options, high-growth options, [and] balanced options but with ethical ones then they only have one risk profile which limits the ability for advisers to use them with clients.

“Product providers need to take that step if they want to make life easier for advisers and that will bring more advisers on the journey. Matching investments up with a risk profile is a fundamental way that advisers operate.

“It comes back to the financial viability of a product from a provider’s perspective and whether it receives inflows. The ESG team might be all in but the business may not necessarily be and it costs money to run more funds.”

A second issue was confidence among advisers who were reluctant to move away from products they trusted. This was exacerbated by the push by the Australian Securities and Investments Commission (ASIC) against greenwashing which was making advisers hesitant of choosing funds that could later fall foul of the regulator.

“Plenty of advisers ask their clients about it but there is a confidence issue as they don’t have the time to bury themselves in all the content to get up to scratch with it. But that doesn’t necessarily have to be their responsibility as this is where technology can help support them through that. 

“If a client really cares about ESG, then they feel small if they don’t know about it at a high level when they are supposed to be the expert — so that is another confidence problem.”

“Most advisers want easy solutions they trust which is really important; they get comfortable with the funds they use so if the fund manager is good already [at ESG] then they don’t feel like they have to change and stop using it.”

Speaking earlier this month, a panel of ESG experts said the volume of information provided to advisers about ESG was unlikely to lessen in the future as it became a greater part of compliance. 

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