Consultants overestimate quality of own advice on climate, report suggests

Ninety One finds large gap between perceived standard of advice on climate-related topics from consultants and asset owners.

Consultants are consistently overestimating the quality of advice given to asset owners across a swathe of climate-related investment topics, according to the latest edition of Ninety One’s Planet Pulse report.

The South African manager surveyed more than 200 asset owners across 13 countries including the UK, US, Singapore, South Africa and the Netherlands on topics including the quality of advice given by their consultants. Eighty-two consultants were also asked to rate the quality of advice that they gave.

The results showed a large gap between the perceived quality of advice given and received. Nearly half of consultants surveyed said that the quality of advice they gave on transition finance was “very strong”, but this was matched by just 28 percent of asset owners.

Areas where consultants were least confident on the quality of their advice included transition finance in emerging markets, integration of climate factors into investment and the adoption of climate-related thematic investment. In each category, less than 40 percent of respondents rated their advice as very strong, while the ratings from asset owners trailed by around 10 percentage points.

The largest gap could be found in positive screening, where just 18 percent of asset owners felt they were getting very strong advice, against one-third of consultants who felt they were giving it.

Asset owners are increasingly turning to consultants for assistance as the space develops. Responsible investment teams at asset owners can be relatively small – the UK’s largest pension fund has a team of nine people – and can lack the skills or experience needed.

Just over half of owners surveyed by Ninety One relied on consultants for advice on climate-related investments. Thirty percent of consultants said their clients do not have an adequate understanding of transition finance, rising to 36 percent for emerging markets

A senior figure at one European asset owner said that the skills and knowledge needed to invest in emerging markets are “sometimes missing with investment consultants”.

“This creates a barrier for us and makes it appear – incorrectly – as if we intentionally neglect some regions in favour of developed markets where we have more confidence in the advice we can access,” they continued.

Nazmeera Moola, Ninety One’s CSO, said that many consultants “are still getting to the point where they really grapple with how they support the transition”.

Moola said it was important for managers to talk directly to asset owners as well as consultants. “We can’t be relying on consultants to come with a prepackaged RFP that is going to address this need. It means we have to be very front-footed in terms of trying to help our clients think through this, whether they are the consultants or the asset owners.”

Performance problems

Among the report’s other findings were that two-fifths of asset owners believe that climate-related investment will lead to lower returns, with a quarter rating it as a major barrier to integrating climate into their investments. Asset owners are also more likely than not to have a sole focus on the risk and return performance of their assets.

Alison Loat, managing director of sustainable investing at Canada’s OPTrust, told Ninety One: “Most investment professionals have grown up in an era where the framing of sustainability has typically been concessionary. There has been a huge mindset shift, because it is no longer always true, yet the framing still exists for many.”

Moola said that this was “pretty much a perception issue”. She suggested that it ties into the view that “if you’re going to do impact investing you have to by necessity accept lower returns and that has been extrapolated to climate”. At the same time, she said asset owners are becoming increasingly accepting of the fact that the climate transition needs to be addressed within portfolios.

Internal resistance to changing traditional strategies was among the most common barriers cited by asset owners to aligning investments with climate, with one-quarter of asset owners rating it as a “major” barrier, and just under one-third expecting the problem to worsen. A lack of companies with credible, realistic and feasible transition plans was the most common problem, followed by the difficulty in measuring company progress.

Issues with beneficiaries were also frequently raised as a barrier, with 21 percent of asset owners concerned about a lack of beneficiary demand for climate-related investments, and 24 percent concerned that their beneficiaries were only demanding low-carbon and not transition investment.