Advisers' ESG consideration blew our minds: Morningstar

More than 60% of financial advisers think it is part of their fiduciary duty to ask clients about their ESG values and preferences – a statistic that “blew our minds a bit”, Morningstar’s director of manager research says.

Thursday, August 8th 2019, 9:47PM

Tim Murphy spoke at the Meet the Managers event this week.

He said while 58% of advisers at the Morningstar Investment Conference in Sydney in May said fewer than 10% of clients asked about ESG considerations, that meant 42% of advisers had at least 10% who wanted it to be a significant consideration.

"It's clearly an important consideration that's only increasing through time," he said.

He said Morningstar had allocated significant resource to ESG research in recent years to work out how sustainable the full spectrum of managed funds was, "not just those that self-select".

"ESG is obviously a topic that's gaining importance in focus in markets right around the world and increasingly here in New Zealand as well."

He said the number of inquiries from advisers Morningstar worked with had increased by a factor of two or three times, wanting guidance about which stocks or funds had exposure to certain sectors and considerations.

"We definitely see that continuing to play out."

He said the May conference showed that people's perception of what was an attractive investment had not changed much, year-on-year.

Global equities were rated as the most promising investment class this year and last.

But last year, only 3% of conference attendees accurately predicted AREITs would be the top-performing asset class of the year.

Murphy said it showed the ability to get tactical calls about asset allocation right year-on-year was virtually impossible.

A significant proportion of respondents cited alternatives as a good option, which Murphy said made sense if bonds and equities were seen to be overvalued.

But he said, by the time that was packaged into a strategy that would fit into a PDS with a fee attached, alternatives had limitations and the outcomes were consistently poor.

Despite that there was continued interest. “We’ll see if that continues going forward.”

Tags: asset allocation ESG Morningstar