ESG remains divisive, many advisors just don't think it's sustainable

ESG has become one of the most divisive topics in investing and not just in the US, according to new research.

While the survey of financial advisors shows that the Americas region overall is someway behind Europe and Asia-Pacific for the percentage of their book of business invested in ESG, it also reveals that more than half of respondents globally said the share is less than 10%.

The poll by international investment firm Vontobel found that 24% of respondents from Europe said that at least a quarter of their total book in ESG, this falls to 16% in APAC, and 11% in the Americas.

For those advisors that said they have limited or no investments in ESG, 80% said this is because they think it’s just a trend, but overall, almost two thirds expect to have at least 10% invested in ESG over the next three years, and this was seen across the three regions included in the research.

Asked about performance, 65% of the survey’s respondents said that ESG investing does not have a negative impact on investment performance and most advisors said it had a neutral to positive impact.

However, concerns around inconsistent standards, metrics and taxonomies continue to pose barriers to advising about ESG investments (88% said it makes it somewhat or very challenging), followed by insufficient sustainable products available across all asset classes (82%), evolving ESG regulations (81%), and a lack of ESG data, research and information (80%).

Despite attacks on environmental, social, and governance data being used, one former Congressman said he is hopeful about climate investing.

Advisors said that they rely most on financial institutions and consultants, industry reports and whitepapers, and financial news and journals when researching ESG products.

“Although ESG has been facing several headwinds recently, our study shows that it is set to continue to rise in popularity among investors in the coming years to the extent that Bloomberg Intelligence estimates that global ESG assets will rise to $40 trillion by 2030,” said Christoph von Reiche, Vontobel’s Head of Institutional Clients. “With their knowledge, competence and closeness to clients, financial advisors and wealth managers play a key role in helping the ESG sector to grow further and enabling investors to benefit from this important trend.”

He added that with significant hurdles the whole investment industry needs to provide greater support in helping advisors overcome these obstacles.

“On the perceived lack of suitable ESG products across asset classes, a closer and more open dialogue between both parties could help ensure that advisors’ needs, and those of their clients, are met appropriately,” he concluded.