This is part of the reason why Andrew Alexander, director and head of investments and product strategy at Three Counties, has not entertained the idea of sourcing an off-the-shelf ESG solution.
“You can go to a DFM, but with their fees they’re pretty much asking for your first born,” says Mr Alexander, who does not have an ESG offering, but acknowledges the upcoming regulatory pressure to do so.
“That said, the options are pretty limited,” he adds. “There are ratings for ESG funds, but is it worth rating funds as a snapshot in time? Therefore, how stable is that rating?”
Concentration risk
Due to the difficulties around research, there is a risk of ESG ratings being relied upon at face value.
For example, oil giant Shell has a 59 per cent ESG ranking by sustainability research provider CSRHUB for its work on sustainability and cutting emissions. This rating belies the fact Shell is known to be a polluter.
Mr Fitzgerald says this represents a learning curve for advisers as investors will need to do more thorough research in order to arrive at their own conclusions.
He notes: “The biggest challenge is the quality of data and the ability to analyse it properly.
“Like with any funds, you don’t take the asset manager at their word when they say it’s the best thing since sliced bread. You read the prospectus and then do your own due diligence.”
Jon Yarker is a freelance journalist
