ESG: how to get ready ahead of new regulations

New regulations are coming in 2021 that will require advisers and financial planners to evidence that their business process assesses and reflects their clients’ environmental and social preferences.

Environmental, Social and Governance (ESG) investing is one of the fastest-growing areas of finance, moving from a niche industry to a major disruptor. It’s a subject that advisers need to ensure they understand fully, so they are ready to comply when the regulations come into force next year.

This means every adviser now needs to have meaningful conversations with clients on this topic. For example, how much impact do clients want to have with their investments, and how might those choices affect the long-term performance? What is greenwashing and how to recognise it?

With so many elements needing to be addressed and documented, getting fully informed can seem like a daunting task.

White paper provides essential information

This is why our investment team has done the hard work for you and put together an in-depth and informative white paper that summarises for advisers what they need to know.

Written specifically for financial advisers and planners, ‘ESG in Investing: everything you wanted to know but were afraid to ask provides essential information they will need to advise clients on this fast-growing investment option.

Key elements of the white paper include:

Acronym and jargon buster: The terminology linked to ESG can be confusing. Various bodies have created their own wording, including The Investment Association, The UN PRI, The Global Sustainable Investment Alliance (GSIA) and The Global Impact Investing Network (GIIN). The EU is also working on their own taxonomy. The PortfolioMetrix white paper runs through all the main terminology, explains what it means in plain English and puts it into context of how it fits together and relates to both advisers and clients.

History and size of market: A brief round-up on where we are, how significant this area of investment is and how astonishingly quickly it is growing.

The characteristics of responsible investment: are companies with higher ESG ratings better run? Why caution is needed in making universal assumptions.

How responsible investment portfolios have performed: a review of performance according to peer reviewed academic papers, and what this could mean for the future.

Forthcoming regulation in the advice market: an overview of what advisers will have to shortly comply with, plus a brief toolkit to help advisers prepare.

At PortfolioMetrix, ESG has been an integral part of the investment management process from the outset: all our portfolios can be considered ESG aware. For those who want to go further, our “Sustainable World” portfolios (formerly known as Ethical Emphasis) provide an investment solution that is dedicated to ESG considerations.

PortfolioMetrix is driven by the desire to help our end clients meet their financial goals. Maximising investment returns over the long-term is obviously a key part of achieving this, but so is meeting the needs and constraints of individual investors. We believe ESG considerations feed into both these considerations.

We must be doing something right because we’ve been shortlisted in the Portfolio Adviser Wealth Partnership Awards in the “ESG advocate” category. We’ll find out in a couple of months how we’ve done but it’s great to get this recognition in the form of a shortlisting.

‘ESG in Investing: everything you wanted to know but were afraid to ask’ is available as a free download from the PortfolioMetrix website.