Embedding ESG considerations within your client fact finds and annual reviews can ensure that you continue to provide a service and proposition that meets the evolving needs of your clients.

It could also put you in a prime position to take advantage of this new customer demand pool which is emerging around responsible investment. 

Everyone is already aware of the inter-generational transfer aspect of this. £1 trillion is expected to be passed down from this generation to the next within the next decade.

However, this demand pool does not just include millennials; it includes females as a demographic and it also includes those individuals who have yet to enter the advised market. To an extent, embedding ESG considerations within your advice process now can help future-proof your business.

What should you ask? 

Upcoming changes to MIFID II mean that soon, you will have to find out a client’s ESG preferences as part of fact finds and annual reviews. Some questions you might want to ask include: 

• How strongly do you feel about environmental factors such as climate change, and a company’s environmental footprint and activities? 
• How strongly do you feel about issues involving corporate governance (the way a company is run)? What about social issues such as diversity, equal opportunities and working conditions? 
• How important is it to you to invest in companies that take environmental, social and governance - or ‘ESG’ factors - into account? 
• Are there any particular sectors or industries you would wish to avoid, even if it meant you would potentially earn less on your investment? 

These are just some examples, but they help uncover a customer’s basic feelings about ESG, the level of importance, and how it relates to their overall feelings about their returns. 

If your clients display a preference for ESG considerations, then you will need to think about defining your own responsible investment service and proposition, which may be separate to the centralised investment proposition (CIP) you currently have in place to serve the different segments across your client bank. 

That might involve making use of specific responsible investment funds or aligning with an asset manager that has ESG considerations built into the overall decision-making process. 

In conclusion 

The final step is easier said than done, and that is keeping up to date with everything.

There are regulatory proposals and changes, macro initiatives driving responsible investment into the mainstream as well as an increasing amount of ESG indices and richer datasets readily available to analyse.

This is all moving at quite some pace and will continue to pick up momentum.

The good news is that there is also an expanding amount of educational content coming to light and my advice again would be to leverage as much of this as possible.

There is so much new market information on ESG around that it can be confusing to understand the differences between each approach.

The Responsible Investment Framework from the Investment Association (IA) is a useful guide that explains key terms as well as a closer look at different RI components. 

Ryan Medlock is senior investment development and technical manager at Royal London