ADVISOR | October 2022
The new Mifid II provisions on clients’ ESG preferences (in effect since last August) require specific questions aimed at assessing the clients’ interest in and awareness of issues pertaining to ESG investing.
The periodic polls conducted by FINER reveal substantial differences among end investors. Such differences should be acknowledged by regulators as well as by intermediaries.
The differences in the approach to ESG investing are linked to gender (men – women), generational cohort (year of birth), level of education, and wealth.
On average, women and people under 40 tend to be more responsive to investments accounting for environmental and societal impacts. The same applies to mass market and affluent clients.
On the other hand, men and people over 50 tend to be more responsive to issues pertaining to governance. The same applies to upper-affluent, private and HNW clients.
In turn, surveys on financial advisors and private bankers show the same differences, dictated by gender, age and wealth. It’s true, then: birds of a feather flock together.
In order for ESG investing not to be envisaged as an asset class, but rather as the common denominator of any investment, the industry of asset management and financial consultancy should set two main priorities.
Firstly, fighting greenwashing by making available to non-experts clear information about the rules and the level of compliance to ESG principles.
Secondly, explaining that ESG investing deserves a long gestation period and time horizon.
This is an assist for the industry of asset management and financial consultancy. In Italy, more than in other European countries, the industry of asset management and financial consultancy is plagued by end investors with a contained timeframe.
Data in hand, on average, Italians tend to invest having a two-year-long time horizon; on the other hand, our European siblings have a three-year time horizon, while the UK and USA reach six years.
Moreover, the outbreak of the conflict in the heart of Europe has facilitated the leap in the price of raw materials as well as the upward trend among manufacturers and refiners of fossil hydrocarbon, but also artillery and defense systems. This, of course, has been hardly beneficial to managers who had excluded such businesses.
We can thus imagine the hurdles experienced by financial advisors compelled to justify their reluctance to suggest investing in non-ESG-compliant societies which, however, have registered +15% year on year. On the other hand, albeit strongly suggested, ESG investments have had a negative yield.
Data suggest that, once again, time is key: in the medium to long term, investments in ESG-compliant companies tend to have higher, more stable and less volatile returns.
However, while experts are well aware of the above-mentioned differences, the offer fails to or, maybe, cannot differentiate their business approach to suit different types of client.
Maybe the day will come when clients themselves will ask for ESG investing and demand to know its parameters. Maybe.