The vast majority of advisers believe investors are being mis-sold environmental, social and governance (ESG) products.
A huge 97 percent of advisers who were surveyed are either ‘very concerned’ or ‘fairly concerned’ regarding mis-selling allegations, in which a client becomes distressed they have invested money in an ESG fund which holds unethical companies.
This report was put together by Cicero, a market research agency and EdenTree Investment Management.
Just under a third (31 percent) said they wanted “clearer, more consistent, and transparent product labelling” reiterating the need for providers to accurately show what companies the fund actually holds.
Despite ethics being seen as an “emotive subject” most advisers unanimously agreed what an ESG fund should not hold. The survey found that any companies from the tobacco industry (94 percent), weapons manufacturing industry (93 percent) or pornography (91 percent) should not be included in an ESG fund.
Neville White, head of responsible investment policy and research at EdenTree Investment Management, said: “The high level of concern among advisers for potential mis-selling is deeply concerning for our industry. What is clear from the report is that advisers typically agree with their clients’ approach to ESG investments from an ethical standpoint. These clients would be troubled if their money was placed in a fund they subsequently felt did not live up to the claim of being ‘ethical’.
“This is a significant barrier for providers of badged ESG, ethical and responsible funds to overcome. A sizeable proportion of advisers do not feel well served by the information from providers about the nature of business activity, the ethical profile of businesses within funds, and the specific ESG ratings of firms included within such funds. There is, consequently a strong risk of product mis-selling.
“We have a situation where fund managers, with little long-term expertise in sustainability or responsibility, may be opportunistically viewing a ‘hot space’ as an easy entry point to a new market. This has created a wave of launches and the re-labelling of funds. To avoid this greenwashing, we need processes with attached integrity. This means testing providers to ensure they know what they are offering and can articulate their strategies to advisers and investors.”
The survey canvassed views from a mix of 100 independent and restricted financial advisers.
EdenTree Investment Management has £2.7 billion of assets under management. The company holds the belief that “strong results can not only be achieved by investing responsibly, but are more likely to achieve out performance when investing in companies with sustainable ESG policies in place.”
