Should Financial Advisors Consider ESG Factors When Advising Clients? – Climate Change

Financial Planners

Savers and investors are advised to turn to financial advisors to carefully invest their savings to meet their long-term needs. South Africa has a large advisory and financial planning industry serving the retail industry, but is this industry evolving rapidly enough to offer new risk-aware advice? ignore the impacts of climate change, biodiversity loss, water scarcity, etc. on your investment portfolio?
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G.Management (“ESG“) factor? Or will financial advisors and planners become the missing link between sustainable financial products and customers?

Amidst all the hype around ESG investing, it can be difficult to distill what is relevant for clients and their advisors. Indeed, ESG investing has become mainstream, with discussions around boardrooms and canteen tables. A growing number of investors are looking to align their investments with their values ​​by investing in companies that prioritize ESG factors and outcomes. Presumably every investor ensures resilience through sustainable strategies and his management of ESG-related risks to ensure long-term financial value.

This shift in investor sentiment has led to the development of investment products labeled as ‘green’ or ‘sustainable’ by product companies, designed to absorb this growing demand. Unfortunately, not all of these labels accurately reflect the real-world impact of packaged portfolios, leading to mistrust and condemnation of greenwashing. Discussions of ESG have become political, suggesting that savers’ and investors’ money should not be invested for purposes other than the goal of financial return.

complexities such as lack of available data on portfolio companies, inconsistent disclosure and reporting, multiple different frameworks for classifying projects and portfolio companies, and philosophical difficulties in dealing with transitions in certain sectors Factors make it nearly impossible for individual investors, or even institutional investors. Investors like pension funds know how to best invest their money to ensure the long-term sustainability of their investments and align their money with their value.

From as early as 2011, Rule 28 of the Pension Funds Act 1956 requires pension funds to promote and take due account of all factors that may materially affect the sustainable long-term performance of the fund’s assets. Mandated to adopt a socially responsible investment approach. Factors under the umbrella of ESG. The regulation recognizes that ESG issues can affect the long-term performance of assets and should be explicitly considered in due diligence assessments. This reflects the South African authorities acknowledging that an investor’s at least primary objective requires him to consider ESG factors. However, even though pension fund trustees have been required to act on this mandate for more than a decade, uncertainty remains and whether pension funds will adopt questionable sustainability strategies ( We continue to see people investing in assets to realize their potential (with potential risk). short-term profit.

Wealth consultants and managers are not routinely obligated by pension fund clients to weigh ESG factors relevant to their portfolio companies on par with the expected financial returns of their investments. . This means that even when service providers consider ESG metrics when evaluating investments, they remain incentivized by short-term financial gains and, in some cases, discourage investments from assets that provide short-term financial gains. means that you are scoring poorly on an ESG indicator.

Imagine the position of an individual investor against this background. Discretionary investments or pension funds want to align their capital with sustainable positive impacts, or want their investments to provide sustainable long-term performance, even if they are indifferent to impacts Imagine. Should such a client’s adviser talk about ESG and sustainability when advising?

South African law does not currently impose this specific obligation on financial service providers (“FSPMore“) and its representatives are described in so many words, no doubt there is a possibility that this obligation is built into existing obligations.

Board Notice No. 80 of 2003 (General Code of Conduct for Certified FSPs and Representatives) was issued under the Financial Advisory and Intermediary Services Act 2002, which imposes obligations on financial service providers to provide services in accordance with reasonable requests or instructions of customers. “Appropriate” for FSP and client Advice on client needs and objectives.

The latest draft of the Financial Institutions Code of Conduct Bill of 2020 requires covered financial customers to advise on appropriate financial products and services, and requires financial institutions to monitor and review the suitability of financial products and services. We confirm this principle by requiring Ongoing foundation.

As such, FSP advises clients when their interests, needs, objectives and direction require capital to be invested to achieve long-term sustainable growth or to align with client values. There is an obligation to consider ESG factors when This is consistent with laws in other jurisdictions that impose similar obligations on financial services companies.

In the UK, consumer tax guidance issued in 2022 will require businesses to consider the diverse needs of their customers and ensure that their financial products and services are suitable to meet those needs. . In the European Union, MiFID II, the legal framework enacted by the European Union to regulate financial markets and improve investor protection, has recently been amended to incorporate sustainability and is offered to clients It imposes obligations on companies to evaluate the suitability and suitability of investment products and services.

The content of this article is intended to provide a general guide on the subject. You should seek professional advice for your particular situation.

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