ESG standards short-term trend or mainstream?
With the introduction of pan-European ESG standards, the certification of financial and estate planners according to internationally uniformly defined rules is becoming increasingly important. However, this also includes training, independent audits, proof of experience and in-depth knowledge of ethical standards.
ESG is an abbreviation of the terms "environmental", "sustainable" and "governmental". In the meantime, the EU has tightened the regulations with regard to sustainable investment. For example, under MiFID II, investment advisors and asset managers will in future have to ask their clients to what extent they wish to consider a sustainable investment in accordance with their ESG preferences in their pension provision as part of the suitability test.
If they answer in the affirmative, then the advisor must be in a position to recommend products to the client that meet the sustainability objectives of the respective investor as part of the suitability test. This creates new challenges in terms of the products to be recommended and the advice given. In addition, there is the EU taxonomy, the first draft of which was published this summer. The aim here is to develop a classification system to help investors better assess whether and to what extent certain economic activities of companies are sustainable in environmental, social and governance terms, i.e. the so-called ESG criteria.
Sustainable investments are out of the eco-corner
According to the 2019 market report of the Forum Nachhaltige Geldanlage (FNG), the market for sustainable investments achieved unprecedented momentum last year. According to the report, a total of around €219 billion was invested sustainably in Germany at the end of 2018 - a new record high. But above all, sustainable funds and asset management mandates recorded their biggest overall growth since the survey began, increasing by €41 billion. But "sustainable investment" is also a central concept in regulatory efforts.
This means that in future, only "sustainable investments" can be offered to clients who have an ESG preference. "This already shows that sustainable investing is gradually becoming mainstream," comments the FPSB board member. "From an investor's point of view, this is also not surprising, as there are now many studies confirming that sustainable investing not only reduces risks, but also does not entail any disadvantage in terms of returns, and in some cases even brings better returns."
However, it is apparently not yet private investors who are significantly invested in this area. According to a survey conducted by the German Banking Association in April of this year, only five percent of respondents hold sustainable investments in their portfolios. It is particularly significant that those who are aware of sustainable investments but have not yet used them shy away from them primarily because they believe they know too little about the subject or expect too low a return from sustainable financial investments. In fact, according to a study by the securities regulator BaFin, around 60 percent of people in this country are completely unaware of the term 'sustainable investment'.
Better education in sustainability urgently needed
"All of this is beneficial and is fundamentally aimed in the right direction. However, it also means that financial advisors today need a very deep knowledge in this area," says Prof. Tilmes, who, in addition to his board activities, is also Academic Director Finance & Wealth Management at the EBS Executive School, Oestrich-Winkel. "If this initiative is to be successful and if more investment money is actually to flow into sustainable investments, then excellently trained financial experts in this field are needed, as a kind of multiplier, as it were. Otherwise, all the efforts will be in vain and leave only frustrated investors behind."
Tilmes therefore believes that more efforts are urgently needed on the part of the financial industry to better train advisors in sustainable investment. The FPSB Germany can serve as a role model in this respect. The CFP® professionals certified by the FPSB are not only among the best trained financial experts in Germany, but are also obliged to undergo ongoing training and further education on the basis of ethical rules of professional conduct. They must therefore also deal intensively with this subject area, which is new to many advisors. "And they are thus already able to advise investors on this topic at the highest level and individually appropriate," says the FPSB board. "And this is precisely an important piece in the mosaic of making the economy more sustainable in the long term."
The Financial Planning Standards Board Ltd - FPSB is a global network with currently 26 member countries and more than 180,000 certificate holders. The Financial Planning Standards Board Deutschland e.V. (FPSB Germany), based in Frankfurt/ Main, has been a full member of this organisation since 1997. The aim is to spread the worldwide professional standard for financial planning and to promote public confidence in financial planners.
