Over half (52%) of Financial Planners only consider ESG criteria for retirement portfolios when requested by the client, according to new research.

A third (31%) of Financial Planners told Aegon and Next Wealth that ESG is among the factors considered when selection funds in retirement portfolios.

Only 3% of Financial Planners said they apply a strict ESG screening approach to all funds selected.

Adviser interviews for the report highlighted there are still questions on how to determine a client’s ESG preferences. ESG means different things for different people so understanding how to translate this into an investment portfolio can be challenging.

One adviser said: “The problem we have is clients can be quite specific, like avoid tobacco or arms….and when we drill down, one of the funds we use on the advisory side of the business will invest in something they don’t agree with.”

The advisers interviewed agreed that there needs to be better standards in data and language to support wider adoption of ESG approaches to investing.

Firms have generally developed their own way to determine their clients’ ethical considerations but are looking for clear industry standardisation and taxonomy that supports translating this into investment portfolios, according to the report.

One adviser said: “What we’re constantly looking for is some sort of industry taxonomy such that we can actually have a sensible conversation about [ESG integration]. We’ve developed our own in a way to lead people to where we think the answer is…but every client is going to be different.”

Tim Orton, managing director for investment solutions at Aegon, said: “We have seen a sea-change in responsible investing with individuals increasingly looking for answers on how their investments are contributing to real-world change. This has been furthered by increased regulation and momentum from the government pushing forward it’s green agenda for investments.

“The research shows advisers are taking this seriously and considering ESG factors when building portfolios, even if demand amongst retirement clients hasn’t yet caught up with the wider investment community.”

Aegon and Next Wealth surveyed over 200 financial advisers for their Managing Lifetime Wealth: retirement planning in the UK report, they asked questions on the biggest issues in the retirement advice industry and the survey was complemented with in-depth adviser interviews.