PFS calls for improved sustainable finance knowledge

The Personal Finance Society (PFS) has called on Financial Planning and advice firms to improve their knowledge and awareness of ESG and sustainable financial advice.

In a new report published today the PFS said there are inconsistent approaches or levels of confidence in advice.

The report, ‘Sustainable Finance: Knowledge Gap’, examined the sector’s approach to and confidence in advising on sustainable finance.

It said the report reflected the views of PFS members about their firm’s approach to ESG and sustainable investment advice. It also considered the extent of knowledge held by individuals, approaches to advising or supporting sustainable and values-led investment, and key areas of concern when offering sustainable investment advice.

The findings found that:

  • 9 in 10 respondents stated their firm requires advisers to follow a standard process to ensure clients make informed decisions;
  • only 4 in 10 firms included ESG, sustainable and values-based investment knowledge as part of their training and compliance regime;
  • just 5 in 10 respondents reported that their firms actively check for greenwashing;
  • 4 in 10 practitioners have concerns about the sustainable investment advice that is being provided.

Advisers’ key areas of concern with providing ESG and sustainable advice included:

  • Greenwashing & mistrust in fund providers
  • Lack of standards/benchmarks
  • Lack of diversification and its risks

On the ‘lack of standards/benchmarks’, one respondent said: “The main concern is that there are approximately half a dozen ESG & sustainable rating agencies, the definitions and ratings given by each on the same funds and companies can differ drastically, therefore until such time that this is harmonised properly it is almost impossible to have consistent process based on due diligence on funds.”

Don MacIntyre, interim chief executive of the PFS, said: “With the Consumer Duty coming into force last year, and with Sustainable Disclosure Requirements (SDR) and investment labels being rolled out during 2024, there is a need for an investment in awareness and competence across the sector, not just to satisfy regulatory demand, but to respond to growing interest from clients.”

He said the report illustrated that there is a good general awareness of ESG and sustainable financial advice, but that the industry does not yet have consistent approaches or levels of confidence in advice. He pointed out there were a number of inconsistencies in the ways that similar questions had been answered that suggests the industry should look at the broad picture rather than individual statistics in isolation.

He said one clear message delivered by the report is that firms must focus not just on the technical understanding of ESG funds and ratings, but on the practical skills of investment selection, client education and communication. 

Recommendations for firms and practitioners in the report included:

  • Firms should consider a standard level of competence for all advisers within their training and compliance regime.
  • Practitioners should prioritise appropriate sustainable learning, such as ESG and sustainable investment advice.
  • Analysis at business level should be appropriately scrutinised by senior managers.
  • All clients should be proactively and consistently asked about sustainable and values-based investment preferences and offered suitable education on the available options.
  • Ensuring an appropriate level of knowledge to recognise and guard against greenwashing within ‘business as usual’ communications.

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