There is strong retail demand for responsible investing products, but the sector is still "confusing" and in need of both consumer and adviser education, according to a panel of experts.
The Responsible Investment Association Australasia (RIAA) has released an updated Financial Adviser Guide to Responsible Investment, and discussed both the growth in the retail ESG/responsible investing market, as well as the questions pertinent to advisers in a recent webinar.
"I fundamentally think it's a very confusing space," said Jessie Pettigrew, senior manager, sustainability at BT. "... It's really hard to translate that to an end investor. That's the real opportunity for us as a platform provider, and for the financial advisers to make sure that the clients coming thru the door and saying they're interested are connected to the right sustainable products."
Pettigrew said there has been strong demand for products that have been certified as responsible by RIAA on the BT platform, in terms of new clients and in terms of inflows.
Farren Williams, adviser and partner at Koda Capital, also said she has seen a "huge uptick" from clients for sustainable products.
"We're having a lot more conversations with clients on responsible investment" Williams said. "We've been doing that for the last five years, but the frequency that the topic is coming up with clients. As well, we're seeing some very large family groups that don't have that on the radar before, in the last two years, there's been this huge uptick and clients are saying this is an absolute necessity."
Williams noted that frequently, advisers don't know if or which products on their approved product list (APL) are responsible investment options.
"If you don't know that you've got a range of responsible investment products that are available, that have passed the test in terms of APL, how likely are you to raise the question with clients," she said. "The APL issue is very real. It will pose problems in risk compliance terms, to make sure that they are flexible enough around that to make sure that a client's needs are met."
Williams also highlighted the concern that many advisers have that available fund options align with clients' values, and have adequate disclosure and transparency such that clients are not surprised by investments that they did not expect.
Yo Takatsuki, head of ESG research and active ownership at AXA Investment Management also highlighted that in addition to having information on fund options, it is also important to understand what fund managers are doing at the firm level in terms of commitment to responsible investment.
"The other thing to note that while this is something that has a single name - responsible investment- there's lots of different things underneath." Takatsuki said. " ... To what extent is the responsible investment approach been adopted? Is it a box-ticking exercise, is it seen as a cost, or is it something the firm believes is part of its own conviction, and to what extent have they taken steps to mainstream ESG? That's a really telling thing. If a fund manager only chooses to have a narrow focus with select funds or niche products, they haven't embarked on what's quite a painful political exercise internally."
The RIAA adviser guide is designed to help advisers answer those questions, which sets out to demystify responsible and ethical investing, providing advisers with practical ways to incorporate responsible and ethical investment practices into their businesses and better meet client needs, RIAA noted.