Advisers risk losing clients if they fail to acknowledge and factor in their environmental, social and governance (ESG) preferences, according to an asset management firm.

Jonathan Yousafzai Chartered FSCI, of Thesis Asset Management, made the claim today as ESG funds have soared in popularity in recent years.

Thesis says investors have “woken up to the idea” that they can invest in responsible companies, without having to compromise on performance.
 
Inflows into ethical funds topped £1bn for the first time last year, according to figures from trade body The Investment Association.
 
But, while these funds are gaining traction with investors, it has taken time for some in the industry to acknowledge the significance of ESG investing particularly on the younger generations, according to Mr Yousafzai, head of ethical investment at Thesis.

He said: “I believe ESG is becoming more and more mainstream due to increased consideration of ethics as well as profit.
 
“Practitioners ignore ethical investment at their peril; it has gathered a great deal of momentum.

“All the investment managers at Thesis are now discussing ethical considerations with their clients.
 
“In financial services, when you are speaking to clients, you should naturally touch upon ESG.

“Advisers or investment managers who avoid that conversation are running the risk of losing some of their client base.”
 
He added: “In the past, I think clients have been side-stepped out of investing in this area, but the body of opinion behind investing this way is too strong now to ignore.”
 
Mr Yousafzai also says companies were taking its ESG responsibilities much more seriously than they did a decade ago.
 
“When I started in this part of the industry nearly 30 years ago companies did not even return a questionnaire about their ethical policies,” he said.

“They simply were not interested.”
 
“But now most blue chip firms will have corporate social responsibility manager and policy and know that they will be held to account if they don’t have one.

“Companies that are commercially astute will have CSR objectives as the norm, whereas those that don’t are seen as behind current thinking these days.”

The latest edition of Financial Planning Today Magazine features a column from Triple Point’s Belinda Thomas who also said there was a clamour for ethical investing among portfolio holders.

She said: “More recently, within the growth business arena, investors have been targeting companies that have a positive environmental, social or governance impact.”

She added that this desire was particularly high among millennial investors.