Over half (55 per cent) of financial advisers believe the Financial Conduct Authority's sustainability labels will increase trust, research from the Association of Investment Companies has found.
The research, AIC’s ESG Attitudes Tracker which surveyed 202 intermediaries, found this figure was even higher for wealth managers - 78 per cent of whom believe the labels will increase trust.
Of the four labels, the Sustainability Focus label was found to be the most likely one to be used for screening purposes, with 54 per cent of intermediaries saying they would use it in this way.
The Sustainability Impact label was the second most popular, being mentioned by 52 per cent of respondents, followed by Sustainability Improvers, mentioned by 47 per cent, and Sustainability Mixed Goals, 37 per cent.
AIC research director, Nick Britton, said: “Advisers and wealth managers have given a cautious welcome to the FCA’s new labels; it’s clear they would increase trust and that many would use them for screening purposes.
“However, questions remain about whether the universe of labelled funds will be large and diverse enough to build a portfolio, as well as concerns about what happens to funds that have been presented as sustainable but don’t claim a label.
“One key concern is that the labelling regime currently only applies to UK funds, excluding those based overseas.
“This means that many of our member companies in the renewable energy infrastructure sector, for example, are outside the scope of the regime, though they may have impeccable environmental credentials.”
However, the research also revealed there are concerns about the low number of funds with labels, as well as how labels, or the lack thereof, could affect funds that intermediaries use.
One wealth manager commented: “I don’t know where the funds I’ve got are going to end up sitting on those labels.
“I’ve got some that are based in Ireland, so they’re not going to be subject to it.
“My concern will be whether there are enough companies that can make a diversified portfolio.”
Demand
Additionally, the research found that most respondents (60 per cent) expect demand for ESG strategies to increase over the next 12 months, with only 10 per cent expecting it to decline.
However, comparisons with previous years suggest that this growth in demand is slowing as, in 2021, 91 per cent of respondents expected demand for ESG to increase.
This declined to 80 per cent in 2022, and 72 per cent in 2023.
Meanwhile, the percentage of intermediaries recommending sustainable funds has held steady at 89 per cent, the same as in 2021.
Additionally, the percentage of clients who proactively raise the topic of ESG in meetings has declined to 13 per cent, from 20 per cent in 2022 and 15 per cent in 2023.
Yet intermediaries believe client appetite is still the main driver of ESG demand, with 53 per cent of respondents holding this view.
ESG Profile
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