Adviser ESG uptake driven by clients

The use of environmental, social and governance (ESG) strategies by advisers is being driven by clients, according to a global survey by Research Affiliates.

In a survey of 131 advisers globally, more than two-thirds used ESG investment products in their practices and 90% said they invested up to a quarter of assets in ESG strategies such as managed or exchange traded funds (ETFs).

“Client demand is the primary motivation for using ESG strategies in their practices, as cited by 63% of respondents,” the survey said.

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“The least important motivation behind the decision to use ESG products is the desire to influence corporate ESG behavior.”

However, the majority of advisers (76%) lacked a written policy on ESG and preferred to speak with the clients in person during client meetings. The second most common way was via the firm’s brochure or marketing materials.

Those advisers who did not use ESG investments said they believed it did not add value to client portfolios, there was a lack of client demand for it or that there was a challenge presented by the lack of clear definition of what ESG meant.

The majority of respondents used a mix of active and passive strategies for their ESG investments but 54% said active strategies were better at effectively capturing the material ESG risks and opportunities. Most investment was in mainstream asset classes such as global and US equities and bonds with only 20% that indicated they used alternatives and commodities in the ESG space.

Climate change was ranked as the most important ESG theme by 43% of respondents while gender diversity was ranked lowest. The most popular approach to address climate change was to reduce allocations to fossil fuel companies.

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