David MacDonald, founder of Path Financial, agrees. He says he would ask anyone making this statement “how do you know?”, and “have you actually asked them?”
“The data shows that the vast majority of people want some ESG aspect to their investments, especially where it comes to avoiding harm.
"There seems to be an assumption amongst advisers that ESG is a 'meh' box-tick that they can ignore on the assumption that they know best. This attitude is a missed opportunity to bond and deepen relationships with clients,” he says.
Coates points to existing rules such as Cobs 9A, which says when providing investment advice a firm must obtain the necessary information regarding the "client’s knowledge and experience in the investment field” and their “investment objectives”.
He says this means educating clients about ESG and their preferences is “critical”.
“Essentially, in very simple terms, every single adviser file should be able to demonstrate that the conversation has been had with the client about their investment objectives, [that] the client is aware of all the different ways in which the money could be invested."
He adds: "Cobs is saying, as well as understanding what knowledge a client has, you must have a conversation about their objectives and that isn’t as simple as ‘I’m the client, I’ll give you money and hopefully when you give it back to me when I need it it’s bigger than when I gave [it] to you.”
Mike Head, director at advice firm Ethical Investors, agrees. “It strikes me as an essential element of ‘know your client’, and whether that is under Cobs or consumer duty, the responsibility is very clear,” he says.
“Furthermore, in the absence of evidence to indicate that a genuine discussion took place, not only is the client file surely not compliant, but the chances of winning any case brought to the ombudsman is virtually nil."
Asking clients about ESG
When it comes to raising the topic of ESG with clients there are a number of things for advisers to bear in mind, and being clear in the wording is critical, says Coates.
There are two types of ESG assets, he explains: the funds that are marketed as seeking to invest in ESG companies, and the use of ESG analysis as a risk mitigation tool.
Being clear with the client, especially when they signal that they are not interested, is essential to avoid any disputes when things go wrong.
Many funds end up containing ESG elements as part of their risk managing, often after being retrofitted. Clients who have made a conscious decision not to have ESG in their portfolios may have a case against the adviser if they unknowingly hold ESG assets and markets are down.
