The hardest decisions in life are not between good and bad or right and wrong, but between two goods or two rights. *Joe Andrew
Is choosing the companies that perform best in each sector or industry on ESG factors the best way for intermediaries to select investments for their clients?
Research in Finance’s (RiF) third annual UK Responsible Investing Study has been completed. Stage 1 of the study is an online survey, with 215 intermediaries participating this year, of which 110 were discretionary fund managers (DFMs) and 105 investment advisers (IAs). Of these, 205 are either currently investing in or recommending responsible investing (RI) funds. For stage 2, the online community, there were 10 intermediaries who took part – 5 DFMs, 3 IAs and 2 paraplanners. All 10 are currently investing in or recommending RI funds and they have a relatively favourable view of RI.
As there are now three waves of annual data to consider, in effect creating a three-year track record, this enables us to assess trends in the understanding and knowledge of, and demand for, RI. The differing types of participants in this extensive piece of research enable us to produce a study aimed at both intermediaries as well as one for institutional investors (results for the latter available in the next few weeks). We are examining the uptake of – and barriers to – the implementation of RI in detail.
Over three quarters (76%) of intermediaries believe that RI should just be seen as sensible long-term investing, and this view is driven by DFMs (84%). However, given the increase in the number of products in the RI arena, a greater number of intermediaries interviewed for this year’s study agreed with the idea that it is difficult to distinguish between ethical and sustainable investment strategies (79%). This notion is driven by IAs, of whom 87% agreed.
Almost four fifths of intermediaries noted an increase in demand for RI in the past 12 months, driven predominantly by greater awareness of the issues involved and – related to this – heavier media coverage, consistent with one year ago. The overall trend year-on-year shows that responsible investing is now a key part of the conversation between intermediaries and their clients. Intermediaries also expected demand to increase further over the next year for RI, with small increases identified in expected demand for funds with ESG integration, sustainability-focused funds and impact funds. In terms of how to assess different RI approaches, ESG integration is the most favoured among intermediaries, which is consistent with last year. Negative screening is the least favoured. Meanwhile, however, adopting a best-in-class approach divides opinion. As shown in the chart below, this is the top approach among IAs, but ranks 5 out of 6 among DFMs.
The research also identified that client-facing intermediaries are increasingly likely to proactively bring up RI with their clients (80% vs. 71% a year ago and 59% two years ago). With a wide range of such findings on ESG reporting, we believe that this study is likely to yield nuggets of insight that may be valuable to several asset management companies.
To discuss any points raised in this article please contact Catherine McNaught, Head of Content.
If you would like to know more about the UK Responsible Investing Study and how to subscribe, please contact Toby Finden-Crofts or Richard Ley. Options exist to purchase Wave 3 (fieldwork December 2021 to January 2022) or to become a full member with access to the online community for Wave 4 by expressing an interest now.
* Joe Andrew is the Global Chairman of Dentons, the largest law firm in the world. An accomplished and highly regarded corporate lawyer, Joe may be best known for his role as chairman of the Democratic National Committee (DNC) in the US from 1999 to 2001.