Do you really know what you think you know about ESG?

You’re almost certain to have spoken to at least one client this week who’s interested in – or already investing – using ESG factors, but how confident are you in your knowledge?

Most Canadian advisors say that they know their stuff on responsible investment (RI), but some are overestimating their ability to advise clients on these matters.

Following on from a call to address an ESG skills shortage in the financial services industry, a new report from the Responsible Investment Association highlights a knowledge gap.

First, the good news on ESG advice: 85% of respondents among the 500 advisors surveyed said they’re very or somewhat comfortable starting a conversation about RI, while just 15% indicated they’re not comfortable doing so.

Most (94%) advisors who said their RI knowledge is excellent or very good also said they are comfortable starting RI-related discussions.

However, one fifth of respondents who thought their knowledge of RI was good or excellent, failed to identify 3 true statements out of 10 they were shown.

“We are encouraged to find that so many advisors are willing to have a conversation about RI with their clients,” said Mary Robinson, RIA’s director of research and membership. “But this research also shows that education is critical. Many leading advisors have taken the leap and undergone formal training in RI, and we hope this research encourages many more to do so.” 

ESG importance

Advisors generally acknowledge the importance of ESG in today’s investing landscape with 41% saying client interest is the main reason they have discussed ESG or RI with clients.

The desire to make suitable investment recommendations (25%), their sense of fiduciary duty (12%), and to distinguish their practice and services (12%) were other leading reasons for ESG/RI discussions.

However, there are concerns about greenwashing and lack of standards, with these two issues dissuading some advisors from having discussions about ESG/RI with clients.

Better disclosure

This week, the Canadian Securities Administrators has published guidance for investment funds to improve disclosure practices for ESG matters.

Based on existing regulatory requirements the guidance covers issues such as investment objectives, fund names, investment strategies, risk disclosure, continuous disclosure, and sales communications.

"Interest in ESG investing is on the rise and this enhanced and practical guidance will play an important role in helping investors make informed decisions about ESG products, as well as preventing potential greenwashing," said Louis Morisset, CSA Chair and President and CEO of the Autorité des marchés financiers.  

The guidance is at: https://www.osc.ca/en/securities-law/instruments-rules-policies/8/81-334/csa-staff-notice-81-334-esg-related-investment-fund-disclosure

Test your knowledge

Here are the ten statements that the RIA presented to advisors. Which ones are true (scroll down for answers):

1. Research shows that responsible investments typically perform just as well if not better than traditional investments.
2. Some responsible investment strategies may include fossil fuel companies. True 58 Less than 15% of all professionally managed assets in Canada take ESG issues into account.
3. Less than 15% of all professionally managed assets in Canada take ESG issues into account.
4. The United Nations-supported Principles for Responsible Investment (PRI) certifies retail investment products that meet responsible investment standards.
5. To receive a AAA ESG rating a company must generate ‘net zero’ carbon emissions.
6. Responsible investment refers to investments that always exclude fossil fuel companies.
7. Responsible investing is only for investors concerned about morals or ethics.
8. Responsible investing accounts for a majority of professionally managed assets in Canada.
9. Responsible investing began in 2018 following Greta Thunberg’s climate advocacy.
10. Responsible investors can only hold top ESG-rated securities in their portfolios.

The survey was sponsored by Mackenzie Investments, NEI Investments and Vancity.

“We need to understand the challenges and opportunities that exist for advisors in incorporating responsible investing into their client conversations,” said Fate Saghir, SVP and head of sustainability at Mackenzie Investments. “We are thankful to all the respondents to the survey; the insights reinforce the much-needed work required to further awareness, understanding, and adoption of responsible investments.”

The full report is available here: https://www.riacanada.ca/research/2021-ria-advisor-opinion-survey/

Test Answers: Statements 1, 2, and 8 are true, the rest are false.