“Knowing Your Client” Means Knowing Their Perspective on ESG

February 22nd, 2022 | RIA Staff

Canadian financial advisors registered with the Investment Industry Regulatory Organization of Canada (IIROC) will now be discussing the topic of ESG with retail clients on a regular basis, thanks to new guidance from the regulator.

The recently published Guidance Note encourages financial advisors to collect information from their clients about their investment objectives relating to environmental, social and governance criteria or the client’s other personal values. This means that while gathering information about their client’s immediate and long term investment goals, like planning for retirement or the purchase of a home, advisors will also learn their clients personal preferences in regard to ESG factors in their investments. For example, if a client is passionate about the environment, or wants to support women owned businesses, advisors are encouraged to take such factors into account when making investment decisions on their behalf.

The new KYC guidelines, which took effect December 31 of last year, come after years of advocacy from the Responsible Investment Association (RIA), including direct engagement of IIROC, in keeping with our strategic priorities. By accepting the RIA’s proposal, IIROC’s updated rules represent a significant step towards meeting retail investors’ appetite for ESG and sustainability focused investment opportunities.

Bridging the RI Gap

Historically, Canadian retail investors with an interest in ESG or sustainability have been notably under served by their financial advisors. The Responsible Investment Association’s (RIA) 2021 Investor Opinion Survey, based on a poll of 1,000 individual investors in Canada, found that 77% of respondents want their financial services provider to inform them about responsible investments aligned with their values, but only 27% of respondents had ever been asked if they were interested. There is no shortage of responsible investment (RI) products to satisfy this demand, but advisors need to understand their clients’ values in order to connect them to suitable investments.

For the most part, advisors seem confident they can step up and meet the demand. In the RIA’s 2021 Advisor Opinion Survey, of 539 financial advisors in Canada, while only 37% said they regularly initiate conversations about ESG and RI with their clients, a staggering 85% claim to be comfortable talking about ESG. The new guidelines will hopefully help kickstart these conversations, but there are plenty of hurdles that still need to be addressed.

Our survey also found that advisor willingness to speak on RI is linked with their perceived knowledge on the subject. The less advisors claimed to know about RI, the less likely they were to bring it up to a client. In addition, many advisors shared concerns about greenwashing and a lack of standards, which may be preventing them from initiating RI-related conversations. While embedding client values into KYC guidelines is a big win for responsible investing, advisor education and increased standardization are still necessary to align advisors with their clients.

What’s Next?

In recent weeks, the Canadian Securities Administrators (CSA) have issued new guidance for fund managers on ESG disclosure, and a consultation on proposed new climate risk disclosure requirements for public companies is underway. These new developments signal the growing relevance of ESG and responsible investment to all Canadian financial market participants, including financial advisors.

Advisors wishing to learn more about the effect of these new standards can tune into our ESG, KYC, and Client Focused Reforms session at the 2022 RIA Virtual Conference.


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RIA Staff

Responsible Investment Association

The Responsible Investment Association (RIA) is Canada’s industry association for responsible investment. RIA Members include asset managers, asset owners, advisors, and service providers who support our mandate of promoting responsible investment in Canada’s retail and institutional markets.