ESG Pathway: Tips for IFA firms starting ESG journey

Panel urges advisers to look inwardly in first ESG Pathway webinar launched by ESG Clarity and Square Mile

Advisers shared their ESG journey and gave tips for firms embarking on integration in the very first ESG Pathway session, a joint initiative from ESG Clarity and Square Mile Investment Consulting & Research.

In the ESG Pathway webinar session Adviser: The Experience, hosted by Square Mile’s Jake Moeller on 24 September, the panel urged adviser firms to look inwardly at their own ESG credentials before looking at the fund universe.

All three panellists – Declan McAndrew, head of investment research from Foster Denovo, George Critchley, senior partner at Pennine Wealth, and Annette Hender, partner at Taylor Made Financial Planning – said a lot of “groundwork” took place internally to help management decide on their approach.

Taylor Made’s Hender said in the panel: “ESG is an area we have been excited about for a number of years, but there is a lack of clarity in the industry and we felt it was difficult to be authentic.

“We took a step back and asked how we could be more systematic, and put a more robust approach in place.

“The starting point for us was to really look inwardly and ask ‘what is our approach to ESG? We looked at opting in, opting out, full integration.

“Our research has been broad and extensive as we needed to understand what we can do and how to approach this as a business before we started to look at products. We wanted to ensure we were delivering this in an authentic way.”

Meanwhile, Foster Donovo’s McAndrew also highlighted the importance of firms assessing their own credentials first: “We did a lot of soul searching and had aspirations in this area for a while. Companies need to look at how they are running businesses themselves. Clients recognise when that is not there.

“It is important to look internally before putting a proposition in place.”

See also: – Advisers see ESG as opportunity to grow their businesses

Starting points

Educating clients around the topic and drawing upon external expertise were also encouraged as helpful starting points for adviser firms. Pennine Wealth’s Critchley commented: “We wanted our proposition to be strong on impact and ESG.

“We have used charts and data to show percentage of ESG exposure in portfolios to clients.

“We also used external expertise – we sought advice from John Fleetwood.”

Fleetwood is the founder of the Ethical Investment Association and Ethical Money, the firm that was recently acquired by Square Mile and developer of the 3D Star Ratings framework.

“He knows where funds sit in the grand scheme of things and is aware of any greenwashing going on,” Critchley explained.

“We use this grading of funds and our managers apply that to our portfolios.”

Other suggestions for useful starting points discussed on the panel was the Investment Association’s Responsible Investment Framework and the Principles for Responsible Investment (PRI) website.

“The phrase ‘ESG integration’ is thrown around quite a lot but the industry has a responsibility to deliver this in a way that consumers feel they can trust,” said Hender.

“We found the IA framework a useful place to start and the PRI was also very useful. We read lots of whitepapers on the topic, as well as outputs from responsible investment portfolios.

“It was important to understand internally what we really mean, how we communicate that to clients is very important.”

The panel also discussed that while external resources are extremely useful, the core work needs to be done by advisers themselves.

“It’s important to be mindful to not outsource the responsibility,” said McAndrew.

Regulatory changes

Research carried out by Square Mile in Q1 2020 found that a worrying number of advisers were unaware of mandatory MiFID II changes that determines ESG needs to be part of their suitability processes in H1 2021. Only 54% of advisers said they do not already ask a question specifically around the theme of ESG in their Attitude to Risk Questionnaires (ATRQ) and only 7% said they covered this in their fact find.

However, this appears to have moved on; during last week’s ESG Pathway 82% of poll respondents said they are integrating ESG into their centralised investment propositions (CIPs). McAndrew also said client education around ESG should begin with the fact finding – and for every client.

“If it is not there at the starting point, we are doing clients a disservice,” he commented.

The next ESG Pathway webinar will be held on 14 October 10am – 12pm BST.

You can view the full agenda and register here.




Natalie Kenway

Natalie is editor in chief at MA Financial covering ESG Clarity, Portfolio Adviser and International Adviser. She was previously global head of ESG insight for ESG Clarity and has been an investment journalist...