PODCAST | How far does the ESG advice duty go?

With all the noise around ESG investing it can be difficult for customers and their advisers to distil what is relevant. In this edition of Business Law Focus host Evan Pickworth interviews Jessica Blumenthal and Talia Cullinan from ENSafrica on exactly how far a duty to take ESG factors into account when advising their clients needs to go.

Listen to the interview:

The Context

Savers and investors rely on their financial advisers to counsel them to prudently invest hard-earned savings to meet their long-term needs. SA has a large advisory and financial planning industry serving the retail public, but is this industry evolving quickly enough to provide advice cognisant of emerging risks? Will advice ignore the effects on investment portfolios of climate change, biodiversity loss and water scarcity, among other Environment, Social and Governance (ESG) factors? Or will financial advisers and planners become the missing link between sustainable finance products and customers?

Complicating factors such as lack of data available in respect of portfolio companies, inconsistent disclosure and reporting, multiple divergent frameworks categorising projects and portfolio companies, and philosophical difficulties in addressing transition in certain sectors, make it almost impossible for a retail investor, or even institutional investors such as pension funds, to know how best to invest to ensure the long-term sustainability of their investments and to align their money with their values. 

Asset consultants and asset managers are not routinely mandated by pension fund clients to weigh ESG factors pertaining to a portfolio company equally against the expected financial returns posed by the investment. This means that even though service providers may consider ESG metrics when evaluating an investment, they remain incentivised by short term financial return and in some instances prohibited from disinvesting from an asset providing a short term financial gain, but scoring badly against ESG metrics. 

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