Fears mount over potential mis-selling of ESG products

Fears are growing over the potential mis-selling of environmental, social and governance (ESG) products, a new report has shown.

Almost all – 97 per cent – of the independent and restricted financial advisors surveyed said they are either “very concerned” or “fairly concerned” about ESG mis-selling, as the popularity of the products increases among investors.

Read more: A third of non-investors say they would consider ethical investment funds

A total of 31 per cent of advisors demanded ESG providers offered “clearer, more consistent and transparent product labelling, according to research carried out by Cicero and Edentree Investment Management.

Advisors agreed that ESG funds should never include companies involved in the tobacco, weapons manufacturing or pornography industries.

Edentree Investment Management head of responsible investment policy and research Neville White said providers of badged ESG products had a “significant barrier to overcome”.

“The high level of concern among advisers for potential mis-selling is deeply concerning for our industry,” White said.

“What is clear from the report is that advisers typically agree with their clients’ approach to ESG from an ethical standpoint.

“These clients would be troubled if their money was placed in a fund they subsequently felt did not live up to the claim of being ‘ethical’.

Read more: Why the ethical finance industry is still behind the curve

“This is a significant barrier for providers of badged ESG, ethical and responsible funds to overcome.

“A sizeable proportion of advisers do not feel well served by the information from providers about the nature of business activity, the ethical profile of businesses within funds, and the specific ESG ratings of firms included within such funds. There is, consequently, a strong risk of product mis-selling.”