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Manager Reflections - exponential growth in green bond issuance

“The best barometer of interest that we look at as an active fixed income manager would be ESG labelled bond issuance. Total outstanding stock of ESG labelled bonds eclipsed $2 trillion in 2021, after breaking through $1 trillion in 2020. That trend is likely to continue into 2022. And it’s a good proxy for the demand in the marketplace” Grover Burthey.

ESG investing - a historical advice disconnect?

Given the clear and overwhelming demand for responsible investments that already exists, it may seem a little surprising that, in Australia, and around the world, there has been a historical disconnect between consumer demand for responsible investment options, and adviser offerings.

In a 2020 study of US financial advisers by Cerulli Associates, 58% of respondents said a lack of investor demand was a significant factor preventing their adoption of ESG strategies, and an additional 14% reported that it was a moderate factor23.

A 2021 survey of Australian advisers also uncovered a less than universal enthusiasm for ESG strategies24. Close to 40% of advisers surveyed indicated they had seen no increase in client demand for ESG investment options over the previous 3 to 5 years, while nearly a quarter said they didn’t expect to see an increase in client uptake over the coming 3-5 years. Around 80% of those surveyed said 10% of their clients or less were invested in ESG strategies.

Retail investor research conducted for Climate KIC Australia25 identified a perception that advisers were ‘generally misinformed about sustainable finance or were part of the problem in perpetuating myths about uncertainty related to green fund’.

Factors slowing adviser uptake

A number of factors can explain why, in some quarters at least, the incorporation of ESG investing into the advice proposition has been sluggish.

Firstly, it is likely that some advisers equate responsible investing with politics and environmental activism, and they may be reluctant to broach such sensitive and deeply personal topics with their clients.

Secondly, the availability of ESG options in the past has been relatively limited. For some advisers, including David Graham, this lack of options across different asset classes and risk profiles meant that – until recently – he wasn’t able to construct fully sustainable portfolios for his clients.

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References

23

Advisers are missing the boat on ESG: Cerulli, Jeff Benjamin, investmentnews.com, April 2021.

24

Survey of Australian Financial Advisers conducted by Marketing Pulse, August 2021.

25

Unlocking Australia’s Sustainable Finance Potential, Edwards, M., Kelly, S., Klettner, A., Brown, P., University of Technology Sydney, 2019.

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