Only 4 out of 10 firms include ESG, sustainable, and values-based investment knowledge as part of their training and compliance regime despite 90 per cent of firms requiring advisers to follow a standard process for informed client decisions, according to the PFS.
The PFS has published a report titled “Sustainable Finance: Knowledge Gap,” which examined how the financial industry provides sustainable finance advice.
According to the results, 90 per cent of respondents demand that advisors adhere to a set procedure for making informed client decisions; however, only 40 per cent of training materials address ESG, and 50 per cent actively look for signs of greenwashing, indicating a lack of due diligence.
Concerns about greenwashing, a lack of standards, and inadequate diversity are among the problems raised by practitioners regarding the quality of sustainable investment advice. Furthermore, inconsistent ESG rating agencies make it difficult to create a standardised due diligence procedure.
Firms and practitioners are advised to set a benchmark for adviser competency, give priority to sustainable learning, have senior managers carefully review business-level analysis, ask clients about their sustainable preferences in advance, and make sure that advisers have the necessary knowledge to spot and avoid greenwashing in regular communications.
PFS interim CEO Don MacIntyre says: “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.
“This report illustrates that there is a good general awareness of ESG and sustainable financial advice, but that we do not yet have consistent approaches or levels of confidence in advice. Indeed, there are a number of inconsistencies in the ways that similar questions have been answered that suggests we should look at the broad picture rather than individual statistics in isolation.
“One clear message we can take from this survey is that we must focus not just on the technical understanding ESG funds and ratings, but on the practical skills of investment selection, client education and communication.”
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