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How Wealth Managers Can Use ESG Regulatory Requirements To Enhance Customers’ Experience



Focusing on ESG as a means of adding value for clients, rather than just a regulatory tick-box exercise, has to be the way forward for wealth managers, one expert argues.

Don’t fall into the trap of incorporating Environmental,
Social and Governance (ESG) data just to satisfy regulatory
requirements. It’s important to remain compliant, but ticking
those boxes just for the sake of it doesn’t always create a value
add for your clients, explains Anastasia
, Director of Client Solutions, Adviser Segment, at

This piece forms part of this publication’s new report
“Technology Traps Wealth Managers Must Avoid
2022,” published in partnership with EY, which is available
complimentary download

As wealth managers, you know more than anyone that when clients
invest, they think less about percentage growth and more about
realising their financial goals. For many, a sustainable future
will be a part of this. That’s why building meaningful ESG data
into your investment and advice processes and communicating this
with your clients can have a strong, positive impact on client

It can be easy to forget this amidst the myriad of new
sustainability regulations that are making things that bit harder
though. Most notably, regulations introduced through the EU
Sustainable Finance Action Plan means wealth managers have more
stringent requirements on their plates in terms of how they
report and use sustainability data. 

As two key components of the Action Plan, the EU Taxonomy
Regulation came into force in January 2022 and requires managers
to calculate the Taxonomy alignment of their ESG funds, while the
Sustainable Finance Disclosure Regulation (SFDR) that started to
take effect in March 2021 requires managers to disclose how
sustainability risks are considered in their investment
processes, including those that might have negative effects on
sustainability factors (or Principal Adverse Impacts [PAIs] in
the regulators’ jargon).

In tandem with the Action Plan, amendments to the Markets in
Financial Directive (MiFID) II and the Insurance Distribution
Directive (IDD) mean that from August 2022, a client’s
sustainable preferences must be included in the suitability
process too. 

Combining all of the above, that’s a lot of box-ticking that
needs to be thought about.

Thankfully though, client demand for sustainable investing is
increasing. Whether it’s the latest David Attenborough
documentary or a stronger societal conscience born out of the
Covid-19 pandemic, people have become more sustainability
conscious and use purchasing power to support businesses that
have a positive impact on the environment. It’s no surprise that
many want to adopt a sustainable approach to their finances and
uncover the environmental risks associated with their

For wealth managers, juggling sustainability data to meet
regulatory requirements while adding value to the customer
experience requires a fine balance. Here are some tips to help
you avoid common pitfalls. 

Don’t be overwhelmed by the explosion of data 

Sustainable investing is an evolving space – new data is being
made available daily and even the non-regulatory data in the
marketplace is being enhanced to reflect the progress in both
disclosures and research. 

As an example, at Morningstar we’ve recently enhanced the
Sustainability Globe Ratings to include sovereign ESG risk which
has expanded our ratings coverage by 30 per cent. In line with
the EU Action Plan, we’ve also been working on taxonomy alignment
data for ESG investment vehicles, and additional reporting at
both company and fund level on SFDR, including PAI impacts. 

Many of these regulatory data points and others will be made
available in a new European ESG Data Template called the EET,
developed by the European Working Group (FinDatEx) which is expected to be
ready later in 2022. The template will cover all European
regulatory data sets as well as further data aimed at helping
advisors to better define the suitability of their investments
based on a client’s sustainable investment preferences. 

While all of these developments are undoubtedly positive, given
that this might amount to over 600 new data points, how do you
avoid becoming overwhelmed? 

Start by looking at your firm’s approach to sustainability and
how you want to develop your proposition. There is a great deal
of sustainable investing data at your disposal already, and you
can find similar data points to those coming along in the
Almost 30 per cent
 of EU funds, for example, are now
classified as an Article 8 or 9 fund in line with the SFDR,
meaning that they have either ESG integration or an ESG focus.

Morningstar has a range of different data sets across ESG risk,
carbon, product involvement, sustainable attributes, and
qualitative assessments of fund managers. We can provide
additional look-through data based on our full holdings database
and Sustainalytics’ company and sovereign ESG research, to find
the right insights that meet the needs of your firm and your

Remember that you can build out your approach to sustainable
investing and advice, iterating and improving from a more
informed standpoint as more data becomes available. Waiting for
the perfect data set is not a reality. 

Put your customers at the heart of the proposition 

Your clients are probably more interested in sustainable
investing than you might think. Recent research from Boring Money
indicated that 83 per
of investors would value a conversation with an advisor
about investing sustainably, and 40 per cent say tjat the
Covid-19 pandemic has made them consider it even

Morningstar also conducted a study with Boring Money to gather
feedback from UK retail investors on the use of sustainability
data within reporting. From “eco warriors” at one end of the
spectrum to those purely focused on returns on the other, results
confirmed that in order to provide meaningful ESG data to
clients, a thorough understanding of their motivations was
essential first.

To what extent is your client environmentally and sustainability
conscious? What is the objective of their current or proposed
investment, and how is it meeting its E, S, and G

Avoid getting caught up in regulatory framework and jargon – most
investors will not want to be presented with taxonomy alignment
metrics, or Article 8/9 data. They will want digestible,
easy-to-understand insights instead. Things like investment
objective, third-party validation metrics, explainer content,
visuals, and context, go a long way. 

Putting you customer at the heart of the integration and adoption
of ESG within the business will help you to improve
personalisation, develop trust and portray integrity – all
actions that improve the client experience. 

Get ahead of the digital disrupters  
You can be certain that the digital disrupters in the wealth
industry will already be on top of points one and two. They will
be pushing ahead with what’s available, iterating over time and
not becoming lost amidst the explosion of new data.

Disrupters are predominantly providing a digital or hybrid advice
solution, which makes the customer journey that much more
important. These firms are totally customer-focused when
developing their solutions, taking time to listen to their
clients and sharing these insights with the wider business. They
won’t be…


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