The Sustainability Questionnaire
A2Sustainability’s questionnaire is expertly designed to encapsulate how individual investors view sustainable investing, forming a crucial part of the advice process.
The sustainability challenge
Sustainability considerations have become a core part of investment processes over the past few years.
This has presented a major challenge to advisers as they seek to understand their clients’ views on these issues – which can vary hugely from one individual to another – in line with suitability requirements.
Several studies and surveys have shown that individual investors are eager to invest sustainably, with younger people in particular expressing a desire for their money to be allocated to funds that take environmental, social and governance criteria as seriously as they do financial factors. Examples of such surveys have been carried out by Schroders, Allianz Global Investors, and Natixis Investment Managers.
The urgent need to address carbon emissions to reduce global warming has also escalated sustainability to the top of regulatory agendas.
For advisers, all this means that understanding a client’s attitude towards sustainable investing is now a vital part of the process of creating a financial plan and selecting appropriate products.
While the regulatory landscape is still evolving, at A2Sustainability, we believe the time to act is now. We have a long and successful track record of working with financial advisers, networks, product providers, and financial technology companies to integrate our tools into their systems and processes and facilitate the all-important suitability discussion.
The Attitude to Sustainability Questionnaire is designed to provide a robust and repeatable way of assessing how investors view sustainable investing. It also generates actionable outputs that can help direct investors towards suitable products in accordance with official product classifications.
Individuals are invited to rate how strongly they agree or disagree with each of the 10 statements through the questionnaire on a five-point scale. It takes approximately five minutes to complete.
Each statement has been tested to ensure it is clear and concise and can give a useable result. Examples of statements include:
“It’s more important to me to know my money is invested sustainably than to have a high return.”
“I would prefer sustainable investments even if they are somewhat riskier than other investments.”
The questionnaire is an extension of our successful and market-leading risk profiling tools developed and distributed by our sister company, A2Risk.
Putting it to the test
Through our work developing the Attitude to Risk Questionnaire at A2Risk, we have become very familiar with regulations, guidelines and approaches to assessing product suitability and risk appetites.
This has led us to identify sustainable investing as the next major frontier for regulation – and suitability in particular.
We recognised the challenges that investment advisers face in communicating with clients about sustainable investing preferences, but also the opportunity this presented to develop a profiling tool.
In discussion with some of our adviser and product provider clients, we began developing a series of statement-based questions for a sustainability questionnaire.
We worked with national survey body YouGov to test the clarity and usefulness of each statement with a sample group of 2,000 UK retail investors. We also recruited specialist market research group Ignition House to conduct further detailed testing with a smaller representative group of investors.
The result is a short series of statements around sustainable investing that are easy to understand and robustly tested. These can be mapped onto product classifications such as those developed by EU and UK regulators, ensuring the Attitude to Sustainability Questionnaire can form a key part of advisers’ suitability assessments.
What the regulators say
“We are exploring how to introduce rules for financial advisers aimed at confirming that they should take sustainability matters into account in their investment advice and understand investors’ preferences on sustainability to ensure their advice is suitable.”From the Financial Conduct Authority’s consultation paper CP22/20, ‘Sustainability Disclosure Requirements (SDR) and investment labels’.
The UK regulator is expected to consult on these rules imminently.
“The assessment of suitability is one of the most important requirements for investor protection in the MiFID framework… Firms will need to collect information from clients on their preferences in relation to the different types of sustainable investment products and to what extent they want to invest in these products.”From European Securities and Markets Authority press release announcing its final guidelines for investment suitability. The guidelines form part of updated MiFID II regulations.
It is clear that assessing suitability and client preferences are vital elements of the advice process when considering sustainable investments. As regulations and policies continue to develop, at A2Sustainability we will keep a close eye on the direction of travel to ensure we keep our tools – and your suitability processes – ahead of the game.