There appears to be a solid consensus among UK wealth managers and advisors about the need to understand why environmental, social and governance ideas are valued by clients, a study by the firm says.

A new report from investment management firm Rathbone has found that advisors are becoming universally clued into ESG and the need to understand its value for clients. In a report commissioned just before the pandemic called The Value of ESG: How Mainstream Is ESG Investing Within Today’s Advisor World? the firm set about answering the question.

Looking at the impact of ESG on business growth, client engagement, retention, referrals and performance perceptions, it found that nearly all of those polled (97 per cent) agreed that ESG principles are changing business and society for the better. The same proportion saw it as a path to “fast” or "steady" business growth; while three-quarters saw it as a way to boost investment returns.

For the research, Rathbones divided advisors into two groups: those with 20 per cent or less in ESG investments (non-ESG adopters), and those with 60 per cent or more (ESG advisors).

Impact on business growth
Looking first at business growth over the past five years, results showed a direct correlation between ESG and growth, with 96 per cent in the ESG group experiencing “fast or steady growth,” compared with 80 per cent in the non-ESG group. For firms struggling, 20 per cent in the non-ESG advisors said growth had been "stable, fluctuating or reducing", with just 4 per cent reporting the same in the ESG group.

Mike Webb, chief executive at Rathbone, said the firm commissioned the project to inform thinking on ESG. “Despite the research having been undertaken just prior to the pandemic, the results show that a sea-change in attitudes was already underway, with both adopters and non-adopters recognising ESG strategies’ ability to deliver for their clients,” he said.

The firm surveyed 100 UK advisors (using CoreData Research) in November and December 2019. The sample was split evenly between the two advisor groups.

Client tenure and referrals
Both groups agreed that clients were more engaged with the investment process when ESG was part of the discussion. And advisors with a high degree of ESG focus reported longer client tenure, and more referrals: 82 per cent reported this in the ESG group, against 52 per cent in the non-ESG group.

Performance
In response to sceptics who claim that investments with ESG considerations underperform, Rathbone suggests that these views have “been replaced by a new reality in 2020, even before the outset of the COVID-19 pandemic, during which attitudes towards ESG investing have reportedly become more favourable, and ESG strategies have outperformed.”

Three quarters of advisors across both groups agreed.