ESG shoots up advisers' agendas amid pandemic
Interest in UK equities rising
Nearly three quarters of UK financial advisers are now explicitly considering ESG factors as part of their fund selection process, up from just 43% last year, according to the 2020 Schroders UK Financial Adviser Survey.
The research, which collated answers from 125 UK-based advisers in November, saw a significant increase in the number of advisers paying attention to ESG issues in their investment processes to 74%, while just 26% said the do not consider ESG issues.
Doug Abbott, head of UK intermediary at Schroders, said the increase in interest "shows how important having good ESG characteristics is becoming and how important it is for the industry in terms of the outcomes we can deliver for clients".
According to Abbott, one of the key reasons for the huge rise in interest is regulatory pressure, with regulation identified as the top area of concern by 84% of respondents.
However, he noted that the Covid-19 crisis has also highlighted the importance of ESG and has made advisers and their clients increasingly aware of the need to focus on sustainable companies.
This is reflected in the results: 52% of advisers expect the crisis to lead to a change in client attitudes towards ESG and sustainable investing, while only 28% do not foresee this happening.
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At the same time, while ESG is clearly moving up advisers' agendas, some 58% of respondents rate their confidence in talking to clients about sustainable investing as middling or below average on a scale of 1-5, and only 17% rate their confidence in this area as very high.
Abbott said: "The industry is going to have to help improve this. At Schroders, we take a very education-led approach and we have a number of interesting proprietary tools that we use internally and can start using for our reporting."
Pandemic effect
Meanwhile, many advisers are positive on the outlook post-pandemic, with 45% saying the recovering from Covid-19 is a distinct investible theme.
The survey was conducted before the news about breakthroughs in anti-Covid vaccines were announced, so it is possible that this number would be higher if the survey were conducted today, Abbott said.
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"There is a short-term cyclical recovery that may well happen, and then there is the long-term structural changes that are accelerating existing trends," he said.
In the adviser world, one of these structural changes will be in the way advisers interact with their clients, with only 6% of respondents saying they expect to conduct all their meetings face-to-face if there is a return to normality in 2021, down from 58% before the pandemic; some 60% expect to have a mix of virtual and face-to-face meetings.
Tom Walker, co-head of global real estate securities at Schroders, expects businesses to adopt a "hub and spoke model", consisting of a central hub with a clustering of expertise and the 'spoke', where people would work from home two to three days a week.
Home turf
The survey also looked at adviser attitudes to domestic equities and bonds, with the results showing that UK equities, corporate bonds and government bonds were the main areas where advisers had reduced allocations over the past 12 months.
This money went into international equities, such as US growth, tech stocks and emerging markets, as well as alternatives.
However, looking ahead, a significant number of advisers said they expect to increase allocations to UK equities, marking a significant change from last year's survey, which found 65% of respondents were looking to cut UK equity allocations further.
Abbott said there is a good opportunity to make strong returns in the UK equity space, which is the reason behind the upcoming launch of the British Opportunities Trust for head of equities Rory Bateman and head of UK and European private equity Tim Creed to invest in the "generational opportunity" in UK mid- and small-cap equities.
Looking at the wider investment backdrop in the UK, the majority of advisers (71%) expect little change in the interest rate environment, while 47% foresee a rise in inflation and only 11% think it will fall further.
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