Embark Investor Confidence Barometer

ESG: Why financial advice changes everything

Advisers can open doors to responsible investments
Young ESG investors (and indeed many older investors) will settle for lower returns
The struggle to measure clients’ ESG preferences

in association with

ESG investors seeking the confidence their money is making a difference should hire a financial adviser, the Embark Investor Confidence Barometer suggests.

Advised investors are almost twice as confident as non-advised investors that their portfolio is invested in line with their ESG values.

While 58% of advised investors agreed their portfolio was invested according to their values, this applied to less than a third (32%) of non-advised investors. Meanwhile, 60% of advised investors said they were confident they knew where their money was invested and that it was meeting ESG principles, compared to only 39% of non-advised investors.

The Barometer surveyed 750 investors – both advised and non-advised – on a range of issues. All participants had a minimum of £100,000 investible assets, a pension, and were aged between 35-70.

ESG and the truth about returns

Advisers and investors are challenging a common idea in the world of investment: that a perceived risk of lower returns is deterring clients from investing responsibly.

Almost half (45%) of advisers overall – and more than half (53%) of female advisers – said they believed their clients would accept a lower financial return if an investment had true social or environmental benefits.

This belief is backed up by investors, particularly younger investors with a financial adviser.

More than half of young advised investors indicated they would accept a lower financial return if they felt their money was having a positive social or environmental impact. Some 58% of investors aged 35-44 agreed they would accept this, though older investors were less inclined to do so, with only 24% of 55-64-year-olds prepared to settle for lower returns.

Fewer non-advised investors (32%) said they would accept a lower return, though again it was younger investors more likely to do so.

Advisers call for backing on ESG

The financial advice industry has work to do to truly understand clients’ ESG needs, according to the barometer.

Almost half (42%) of advisers suggested they were not confident in their ability to accurately measure clients’ ESG preferences. Though 56% said they were confident they could, the remainder were either neutral or not confident.

Meanwhile, advisers believe there is a lack of viable ESG options for them to recommend to clients.

Only around half (53%) of advisers were confident they could provide clients with an adequate range of options from an ESG standpoint, with the remainder either neutral or not confident.

“Perhaps of most interest in these findings is that 41% of advisers’ aren’t confident they are able to accurately measure clients’ ESG preferences, which is a huge gap to fill if their clients are to get portfolios suited to their ESG needs. And considering how few tools at present that offer genuinely robust profiling of ESG preferences, many of those that are confident in this regard, may well be over-confident.

It is striking that 45% of advisers are confident their clients will accept a lower return for ESG, with the same proportion of advised clients saying the same. This is consistent with the extensive behavioural data on attitudes to sustainable investing we at Oxford Risk have collected from thousands of investors around the world. Willingness to make this trade-off is the dimension that stands out most strongly in describing investors’ ESG attitudes, with the majority of investors agreeing they are willing to make some trade-off between financial and social outcomes, with some very willing to do so.

This is at odds with the all too easy line many in the asset management industry have been peddling: that people will only buy ESG products if there is no reduction in returns. It should also not come as a surprise – after all most people are willing to accept returns of minus 100% on the wealth they donate to charities.

Advisers clearly have the potential to be very effective in directing investors towards ESG investing. However, they also need help to do this with confidence. Indeed, for many advisers ESG just adds complexity and hassle to an already complex problem. For advisers to most effectively open ESG doors they need the technology and tools to be able to accurately profile investor’s ESG preferences, and crucially to connect these preferences directly into tailored ESG-suitable portfolios. organise their finances for the future.”

Greg Davies
PhD, Oxford Risk