Advisers need to offer ESG investment advice to meet growing demand

Responsible investors who use financial advisors are significantly better-informed about investment performance, fees, and the sustainable impact of products than those who try to look for responsible or ESG options themselves, according to a new report published today by Investment Trends.

Demand for advice about responsible investing is expected to grow with the next wave of investors, with 29% saying they don’t understand responsible investment methodology, and around 27% wanting to seek financial advice before investing.

In 2023, demand for ESG investments remained steady, with 82% of responsible investment advisers recommending responsible investment products to clients in the last 12 months. 

Both investors and advisers called for standardised terminology, better measurement and clearer comparisons to combat greenwashing, with almost half of advisers surveyed saying greenwashing was increasingly challenging their ability to recommend responsible investments.

Advisers surveyed were found to favour ‘actively managed funds’ that met ESG principles, with Australian Ethical the most recommended provider. The most common method that advisers use to assess the ESG credentials of an investment product is through ratings’ house Morningstar, followed by Lonsec.

The 2023 Responsible Investing Report illuminated the role advisers play in helping Australians to invest in line with their personal values, steer investors towards sustainable investments, and demystify ESG principles and products.

Australian Ethical Head of Client Relationships Leah Willis said these findings reinforce the crucial role financial advisers play in guiding Australians to invest in line with their values: “As the responsible investment industry matures, it’s clear investors will need to rely on the ability and guidance of a professional adviser to help them navigate investing in line with their values.

“It’s promising to see the effect responsible investment focused advisers have already had on the cohort of Australian’s looking for responsible investment options. But it’s clear advisers need to remain at the top their game to keep up with growing demand from client’s.

“Equally fund managers who don’t transition will be left behind as the long-term value of non-ethical assets shrinks, our ethical approach has meant we’re well ahead of that curve.”

Almost 70% of advisers felt it was important to broach ESG investing with their clients to fulfill their best-interest duty. A further 80% of advisers agreed it is their responsibility to ensure their client’s investments align with personal values and principles. 

The report found highly driven responsible investors who primarily considered ESG principles when investing had on average almost $1 million invested outside of super, indicating strong demand for responsible investing among high-net-worth investors.