Schroders sustainable investment product executive Claire Herbert has said financial advisers need to understand that clients are becoming increasingly sophisticated so they can be matched to the right sustainable products.
Speaking at Professional Adviser’s ESG Masterclass event on 28 October, Herbert said: “Not only are we seeing rise in interest in sustainable investing, we are also seeing an increase in the level of sophistication regarding the sustainable products clients are looking for.
“It is critical that professional advisers understand clients are becoming more sophisticated so they are able to match them to the right products.”
Herbert said it is vital advisers ask the right questions to identify which approach is suitable for their client based on whether they want to maximise investment opportunities or social benefits.
This means asking clients if they want exposure to specific themes or if there are certain activities and industries they want to avoid.
She said: “Once advisers understand whether their client sits towards financial benefits or social benefits, it is then looking to understand which products in the market are most appropriate to match them.
“Now, I would say this is arguably quite difficult, given the current landscape where there is a lack of standardisation and common terms and definitions. So asking the right questions is absolutely critical at this stage to help match clients with their sustainability preferences.”
Herbert said advisers can assess the fund manager’s approach to ESG by asking questions about the fund’s objective, how social benefits are measured and whether the manager engaged with companies.
She said: “Asking for hard evidence will help you understand the true nature of the products and whether they fit with your clients preferences.
“You are looking for examples of what engagement they have done, and the outcome. Did they deliver long-term value? Was there a positive outcome for society? Things like that.”
Herbert continued: “With sustainable funds you have to go one step further understanding what the sustainability focus of the fund is, and the overall objective the fund is trying to achieve. When you are looking at sustainable funds, it is also important to understand how best in class companies are identified and selected and whether the sustainable fund is trying to avoiding controversial areas such as tobacco and gambling.”
‘Financial versus social’
She said advisers need to be more specific when questioning about impact funds as they are a more recent addition to the investment landscape.
“Advisers need to ask how social benefits are being measured and is this being communicated to clients to encourage the full level of transparency.
“It is also important to understand how the fund manager is balancing financial versus social benefits. Understanding where those are prioritised will help you identify whether this truly is an impact fund.”
Herbert also warned about the growing problem of greenwashing, where products are essentially being marketed or rebranded as sustainable, but the underlying investment process has not changed.
“It is really important to understand the credentials of your fund manager. Make sure that you look at that granular level to understand how ESG fits within every part of the investment process.
“It is one thing to say you’re signed up to the PRI or a similar initiative, but actually look for how they contributing to that to drive positive change for the whole investment industry.”
This article was previously published on Professionaladviser.com