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ESG: You must prepare for crucial conversations

Regulation is on the way in 2021 that means you will have to speak to clients about how ‘green’ they are and how much they would like their views, beliefs and aspirations reflected in their investment portfolios.

Some advisers already have this in hand, but if this is something you have yet to do, it’s essential you get fully prepared well ahead of any conversations. As a recent Money Marketing article highlighted, the topic of Environmental, Social and Governance (ESG) is ‘complex and simple solutions won’t work’.

Importantly, the conversations you have must also be documented, to evidence that your business process assesses and reflects your clients’ environmental and social preferences.

ESG drivers

Before Covid-19 dominated the news, the media was filled with stories that highlighted how much damage humanity is doing to the world and each other. News about exploitation of third world workers, global warming, wildfires, seas full of plastic and the need for sustainable consumption are all elements that are making people stop and think about how they live their lives and what they can do to make a difference.

Investment is one way that they can, and advisers are in the driving seat to help them decide how their money can work for the greater good at the same time as meeting their personal financial goals.

How you discuss ESG investing with clients requires sensitive handling. Without careful preparation, the questions you ask could well lead to investments that are at odds with what your clients really want, or cause you to ignore investments that actually would have been suitable.


Before you begin, it’s worth considering terminology, as this has potential to add to the confusion.

Historically, a lot of terms have been used for investing that incorporates social, environmental, or moral considerations along with pure financial considerations.

These terms include ethical, green, socially conscious, ESG, sustainable and socially responsible investing (SRI). Individually, none of these is quite broad enough to encompass all strategies and some have unhelpful connotations. For example, are you unethical if you don’t invest in an ethical fund?

The UK’s Investment Association uses the term ‘Responsible Investment’ as their catch-all term and this can be helpful in opening conversations about ESG with clients.

A key objective in having these discussions with clients should be to identify where they sit in terms of their aspirations and financial returns expectations. The Spectrum of Responsible Investment is useful in articulating this.

The way you frame the questions can have a major impact on the sort of answers you will get back and raising the subject has the potential to open a can of worms.

For example, if I asked you if you are for or against animal testing, there’s a high probability you would say you were against it and would like to avoid investments that included organisations that had any involvement with it. But what if I explained that pharmaceutical companies are legally required to test on animals before testing cancer drugs on humans? With that knowledge, you may decide that investing in such organisations is acceptable. You may also find yourself with a moral dilemma that you didn’t expect to have when discussing your investment portfolio.

Addressing topics that may not have been considered in great detail before can lead to challenging long-held beliefs. It could also create investment expectations that are difficult to achieve and that may not align to the financial expectations of individual clients.


When questioning clients about their ESG preferences, it’s essential you also discuss the trade-offs, to test that the answers you get aren’t being skewed by emotion.

For example, how many people would be likely to say no if asked if they would like to invest in a portfolio that helps the planet AND would achieve returns? The problem with this sort of question is that it doesn’t separate out how strong their altruistic commitment is. Far better to ask if they are happy to pay a premium, which would eat into their returns, to invest in a portfolio designed to help the planet.

In reality, it may be that the trade-off can be avoided when it comes to actually selecting the investment in the real world, but if not, the adviser will have a firm basis for their recommendation.

Responsible investing is highly complex; its terminology is not formalised; regulations and investment providers keep evolving and questions remain whether investing sustainably affects performance and hence the likelihood of meeting financial goals.

Having the knowledge and confidence to engage in crucial conversations with clients on this topic is essential and the forthcoming EU regulations (which will be adopted by the UK regardless of Brexit) mean you need to start preparing now.

For further information download ‘ESG in Investing: everything you wanted to know but were afraid to ask’, a whitepaper designed specifically for financial advice professionals to provide a concise overview of the topic with practical tips and advice.

For more articles, please visit our insights page

About the author

Dave Chessell

Dave was one of the pioneers in the development of the investment platform market at Skandia UK. Prior to joining PortfolioMetrix, he was Chief Commercial Officer at back office software producer, Intelliflo - experience that gives him a unique insight into the needs of the independent adviser community and its customers.

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