Increasing demand for ESG a boost for financial advice

Financial advisers need to increase their environmental, social and governance (ESG) conversations with client, global consulting firm Capgemini said in its Top trends 2025: Sustainability in financial services report.

The report argued that 2025 will see over 70 per cent of Millennials and Gen Z will prioritise sustainability in their purchasing decisions, with the shift largely driven by “increased environmental awareness and education”.

“With ESG investments expected to increase, along with increasing demand for financial advice, ESG advisory opportunities are bound to grow,” it said.

“Companies are increasingly held accountable for their environmental impact, with 60 per cent of consumers willing to boycott brands that do not prioritise sustainability.”

Citing secret shopper experiment-based research conducted in Canada that suggested financial advisers can improve the service they provide to clients who are interested in sustainability.

According to Capgemini, this showed that ESG discussions with clients are “lacking”, with firms missing out on improving their value as a result.

“Higher ESG scores are linked to increased enterprise value and EBITDA multiples, a 10-point increase in a firm's ESG score corresponds to 1.11x higher enterprise value, underscoring the impact of ESG on financial valuations,” Capgemini said.

The firm also pointed to a global Vontobel study from last year that found an increasing number of financial advisers (62 per cent) are integrating ESG offering into their practices with clients, compared with 53 per cent in 2021.

“Although ESG has been facing several headwinds recently, our study shows that it is set to continue to rise in popularity among investors in the coming years to the extent that Bloomberg Intelligence estimates that global ESG assets will rise to US$40 trillion by 2030,” said Vontobel head of institutional clients Christoph von Reiche.

“With their knowledge, competence and closeness to clients, financial advisers and wealth managers play a key role in helping the ESG sector to grow further and enabling investors to benefit from this important trend.”

Capgemini added that it expects the expanding market for sustainable products to “reshape global supply chains”, which it said would require financial institutions to adjust their product offerings, marketing strategies and investment portfolios.

“As sustainability becomes a key focus for consumers, financial institutions will see an influx of ESG investments, with companies adopting sustainable practices benefiting from a larger market share,” it said.

“Companies adopting sustainable practices will gain customer loyalty and trust, with sustainability-focused brands seeing up to 50 per cent higher retention as consumers favour values aligned brands.

“The focus on sustainability will spur innovation in product development and business models.”

Last year, the Advice 2030: The Big Shift report, produced by Deloitte for Iress, suggested that advisers should look to leverage generative AI to “reduce their time burden in sourcing and validating ESG investments”, allowing them to prioritise time spent with clients.

Furthermore, advice firms could also consider integrating ESG investment screening tools and robo-advice software designed to balance “social impact with financial goals” to improve efficiency and reduce time spent on reporting.

However, the report also recognised that advisers will still need to complete a comprehensive ESG assessment with their clients and provide regular oversight to ensure they continue to meet the complex needs of their clients and avoid unintentionally investing in products that don’t meet their values or that are engaging in greenwashing.