Pensions and investment consultancy Hymans Robertson Investment Services (HRIS) says its latest study suggests that more than 9 in 10 IFAs are willing to accept that ESG-focused funds and investments may produce lower returns than non-ESG funds - but believe this is an acceptable downside risk.

According to the study, more than 4 out of 5 IFAs (81%) say that ESG (environmental, social and governance) criteria are now key concerns when building portfolios for clients.

Hymans Roberston says that as ESG criteria grow in importance and ESG grows in popularity, advisers appear to be accepting that the future of the environment is more important than future financial benefit.  

Only 6% of advisers surveyed thought that ESG considerations should not be made at the expense of returns.

Hymans said this could imply that more than 9 in 10 think that they would be willing to give up returns as part of a greater focus on responsible investment.

Only 13% of advisers said that ESG risks were not a priority, according to research carried out by the firm in December which covered more than 250 IFAs.

HRIS, also a Discretionary Fund Manager, has warned, however, that as IFAs embrace increased ESG focus they must ensure that their portfolios’ construction is evidenced and aligned to the rest of their advice approach to remain compliant.

William Marshall, chief investment officer, Hymans Robertson Investment Services (HRIS), said: “It is encouraging to see that advisers are embracing the importance of responsible investment.  They are clearly giving a lot of thought to managing ESG risks and as they do this it is important for them to approach responsible investment both carefully and sensibly.  

“Responsible investment is a journey being undertaken by investors and advisers and their appetite will change as regulation, and the products offered, evolve.  Transparency and reporting will be the important in the approach taken to managing ESG risks as this evolution develops. 

“It is clear from our research that the vast majority of advisers are either seeing demand, or expecting increased demand, from clients for ESG risk to be incorporated in their portfolios.  As this grows advisers must retain a robust approach and ensure they take care to consider all elements as they meet that need in their clients’ portfolio construction.”