ESG or Socially Responsible Investing has been a hot topic in the institutional investing domain for some time and providers in the UK retail investment arena are starting to follow suit.
Direct platforms have been cautious in their approaches. One of the main obstacles is the lack of a unanimous framework setting out clear definitions and processes. There is still a lot of ambiguity around this and providers have to take a view on whether to develop their own in-house criteria for recommending or providing guidance on ESG or to abide by an existing format provided by the likes of the IA. The terminology alone prompts vehement disagreement as to the lines between ethical, ESG, responsible, sustainable etc.
Currently, six platforms offer dedicated guidance on ethical investing. Some provide whole sections with educational articles and videos (Interactive Investor, Charles Stanley Direct), while others simply offer ethical investments as part of their main select list (Willis Owen, EQi). These recommended ethical investments tend to follow the same selection process as non-ESG products with an additional layer scrutinising whether the fund (investment trust or ETF) does what is says on the tin.
Hargreaves Lansdown takes a different approach by adopting the IA responsible investing definitions and recommending funds based on these criteria. EQi, which recently re-launched its select list, relies on Square Mile, a third-party research house, to provide ESG ratings and fund recommendations.
Digital wealth managers are also following the trend particularly as they cater to a younger audience which is sensitive to ESG issues. Exo Investing, Moneybox, Nutmeg, SCM Direct, Wealthify, and Wealthsimple are amongst the ones currently offering ESG investments. However, they too vary in their approaches which range from offering a single ESG index fund through to complete risk-rated ethical portfolios.
It is still early days for ethical investing in the self-directing world. However, there is clear demand from consciously minded consumers, and it is encouraging to see new strides from providers in this space. We believe this trend will continue to unfold as online services decide how deeply to embed ESG into their strategies.
We explore this topic in our latest report UK D2C: Investment Distribution which is now available. The report looks in depth at direct platform select lists as well as ready-made portfolios, own-brand funds, guidance solutions, banks, robos and more. Download a report outline here.
Thanks to all fund selectors who have spoken to us and contributed to this report.