The introduction of Sustainable Finance Disclosure Regulation (SFDR), which came into effect on 10 March 2021, imposes mandatory environment, social and governance (ESG) disclosure obligations for fund managers and will be a catalyst for financial advisers to have conversations with their customers around sustainable investing
Aviva Life & Pensions Ireland DAC (Aviva), one of Ireland’s leading insurers, recently conducted research to gain insights into consumers’ views around pensions investing and to explore how important ESG considerations really are to them.
Of the 1,200 people surveyed, almost 50% have or contribute to a pension with over half (55%) understanding the type of funds that their pension is invested in. Two-thirds (67%) of consumers surveyed believe that it is important to consider ESG factors before investing and this figure rises to almost three in four (72%) for those respondents with a pension.
Interestingly, females are more likely to consider ESG investing at 70.4% than males at 63.9% and its importance is broadly similar across all age cohorts.
Whilst 51% of those with pensions would like to increase their investment in companies that are tackling climate change, some 70% of those respondents acknowledged the need to better understand the benefits of responsible investing, highlighting the fact that there is an onus on the industry participants to educate consumers in this space.
More than half (53%) of those surveyed believe that it is important that a company has a positive record of social responsibility and good corporate governance, rising to 60% of those with a pension.
Those without a pension rated the importance of a positive impact on Irish social outcomes (46%) higher than a positive impact on the environment (44%), while pension holders rated the positive impact on the environment at 51%, higher than a positive impact on Irish social outcomes at 47%.
Looking to the age cohorts, the above factors are more important to those aged 55+ (63.7%) and less so for the 18-24-year olds (34.5%) - many of whom are unlikely to have a pension.
The survey also explored the factors that are important to consumers when considering investing sustainably. Most respondents (75%) indicated that they would need good financial advice before making their investment decision, rising to 78% for those with a pension.
Two thirds (67%) said they would only invest their pension sustainably if the returns were the same or better, (71% of pension holders) and 64% said they would only consider doing so if they are not paying higher fees and charges (68% for pension holders.
Some 51% of those pension holders surveyed said they would like to increase their pension savings into companies helping to combat climate change and only 20% of all respondents (17% of those with a pension) said that investing sustainably is more important than investment returns.
Almost one in three respondents (31%) would completely switch away from a company if they had a perceived negative environmental impact (28% of those with a pension), 26% would invest less (30% of pension holders), with only 15% saying they would remain invested (21% of pension holders.
When asked if they would stay invested in an oil company that had made a commitment to move to more climate friendly practices, 45% said they would remain invested (53% of pension holders), 11% said they would invest less (similar for those with and without a pension), whilst 36% would seek advice before making their decision (29% of pension holders).
There was a stronger reaction from respondents when asked what they would do if their pension was invested in companies that attracted criticism for their governance and senior management pay with only 13% saying they would remain invested (17% of pension holders). The majority (43%) said they would seek advice (40% of pension holders) and 25% said they would completely switch away from investing in the company (22% of pension holders).
Companies that attracted criticism for how they treat and pay employees received a similar strong response with only 9% (both) saying they would remain invested, 39% would seek advice (38% of pension holders) and 34% would completely switch away from the company (33% of pension holders).
Commenting on the research findings, Richard Jones, Aviva Life & Pensions said: “Whilst the introduction of legislation in this market will serve as a catalyst for financial brokers to engage with sustainable investing, it is evident from our research findings that demand for information and advice in this space will also be driven by consumers. As ESG investing matures, regulation will strengthen and the selection of funds available will expand.
“Asking your pension provider where your money is invested or how the fund manager is representing your voice on key ESG issues is perhaps the most powerful thing you can do.”
“We have designated our flagship Multi Asset Funds managed by Aviva Investors as Article 8 under SFDR, meaning that the funds now have a binding commitment to incorporate ESG considerations into the investment decision process. In addition, we are currently working with other managers to support their move towards more sustainable investing.
“We often think about the small changes we can make to save the planet and don’t always appreciate the actions we could take to propel more impactful change. Asking your pension provider where your money is invested or how the fund manager is representing your voice on key ESG issues is perhaps the most powerful thing you can do to contribute to the single largest threat facing humanity today.
“Data from fund rating agency Morningstar shows that the assets in sustainable funds in Europe surged by 52% to hit €1.1 trillion in December 2020. Morningstar noted in that report that an ESG approach into investment methodology has the potential to improve investment returns, with 52 of the 69 ESG screened indexes outperforming their broad market equivalents, while 88% outperformed for the five years to the end of 2020.
“Insurers have a key role to play both in educating consumers and financial brokers to better understand the significant impact that investing sustainably can have on our climate. In turn, financial brokers will play a critical role in supporting their customers through the investment process and helping them find the most appropriate product that meets their investment criteria within the ESG sector.”