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9 September, 2021 / Analysis

How advisers can tackle the ESG talk with clients

By Kirsten Hastings, International Adviser

Pacific Asset Management-backed profiling tool will help guide conversations

How advisers can tackle the ESG talk with clients

Financial advisers have found themselves a bit stuck in the mud when it comes to ESG.

Everywhere clients look there is hype about green products, and they have questions that advisers may not feel they have the necessary expertise to answer.

Funnily enough, in many ways it is very similar to the cryptocurrency conversation. The space is still evolving, not all the terminology has been agreed and there are less-than-reputable players in the market taking advantage of the confusion.

A report from Boring Money, published on Wednesday, revealed that 69% of advisers are worried about the reputational damage greenwashing could do to their businesses.

Educate and guide

It is also a huge topic. While ESG is a convenient and easily understood acronym, there is a wide gulf between an environmental investment strategy and a governance-focused one.

To help facilitate these conversations, an independent profiling tool called EnlightenESG is being rolled out to market.

Backed by Pacific Asset Management, it aims to educate and guide financial advisers and corporates in assessing the ESG preferences of their clients and employees.

It was developed with independent ESG specialist Nick Spencer from Gordian’s Advice and financial planning firm Fidelius Group.

No products recommended

In a pre-launch demonstration, PAM chief executive Matt Lamb told ESG Clarity‘s sister title International Adviser that the initially free and independently managed tool does not provide investment options or strategies, and no products are recommended.

Once the questionnaire is completed – which the client can do alone or with the adviser – it will produce a client-specific report and one for use by the business.

The profiling tool can distil how clients express their sustainable goals, whether they are interested in a particular area of sustainability and highlight their tolerance to different risks associated with their decision making.

Advisers can then take the client’s ESG profile and use it with their central investment proposition.

The technology behind the tool is designed so that it will constantly learn from the collective inputs and adapt as the world and people’s views change.

It is fully GDPR compliant and uses two-factor authentication and anonymised data.

In addition to the profiling tool, EnlightenESG will also provide a library of curated, unbiased and educational views on sustainability.

The aim is to help advisers stay on top of the constantly changing ESG landscape.

Financial jargon

Lamb commented: “EnlightenESG is our open commitment to ensuring that sustainability meets suitability. As asset managers we are very good at championing the benefits of our own products, often through a fog of financial jargon but we mustn’t forget the implications of that to the ultimate consumer of our product.

“EnlightenESG’s aim is to protect and inform advisers and clients by helping them to make better choices, through intelligent profiling of appetites and attitudes towards sustainability. In the process, it also supports the continued adoption, and in our view, the overall sustainability and longevity of positive investing.

“The ESG universe is constantly evolving and new regulation and a lack of a standardised nomenclature is making this area of investment increasingly confusing for investors and financial advisers.

“With EnlightenESG, we wanted to build a framework around this which advisers can use to help navigate this complex area. ESG should not be dictated by providers. It is not about delivering a pre-defined outcome and we believe an educational approach is better than a proscriptive one.”

Gordian Advice’s Spencer added: “Good advisers want to understand their clients’ perspectives and requirements, particularly in these emerging areas of E, S and G.

“However, advisers and clients face a blizzard of industry jargon that fails to address these factors in relatable terms. The ESG profiler uses everyday examples to understand an investor’s views and their lifestyle choices on environmental, social and governance factors along with their willingness to engage in trade-offs.

“By comparing their responses against peers, the profiler creates a sustainability profile that the adviser can review with their client. But more importantly, it enables advisers to discuss, in everyday terms, what matters to their clients. And using that discussion in the context of their client’s broader financial goals, enables the adviser to integrate their client’s sustainability preferences into their suitability needs.”

This article first appeared on International Adviser

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