Last week’s SRI Services online conference, held during ‘Good Money Week 2020’ put a spotlight on why advisers must engage with ESG sooner rather than later. SRI’s founder, Julia Dreblow, has been talking about the importance of ESG for over 20 years. SRI helps financial advisers and other intermediaries to understand and compare sustainable, responsible and ethical investment fund options.
Among the excellent speakers at the event was Richard Monks, the FCA’s director of strategy. He was clear that sustainable finance is a key focus for the FCA and advisers must engage with ESG investing to ensure their clients can access investments that align to their ethics.
Four key points from his presentation that resonated with me include:
- Investors must be given enough information to make informed decisions.
- Greenwashing is completely unacceptable.
- Trust is very hard won but easily lost: the profession can’t afford to have any examples of mis-selling in the ESG space.
- Even if you’re not running an ESG fund, environmental risk will become another facet of financial risk in terms of driving returns.
He outlined the FCA proposals for guiding principles for asset managers. These include:
- Consistency in messaging and approach (objectives, investment strategy & holdings) – “making sure it does what it says on the tin”.
- ESG focus should clearly reflect what is stated in objectives.
- Documented strategy should set out exactly how objectives will be met.
- Reporting against sustainability metrics should be done on an ongoing basis.
- Assure ESG data quality, understand source and derivation.
Purpose
It’s clear the FCA will find ‘box ticking’ unacceptable in the ESG space. Four key take-outs from the presentation include:
- Clients should be able to choose where they invest and investments should play a fundamental role in environmental issues.
- Investments should not be about numbers and formulas: people should start to associate them with the real world.
- Understanding long-term social and environmental challenges is crucial: the focus should be on cause and effect and not complicating matters too much.
- The role of intermediaries, including advisers and platforms is to give regular investors their voice, taking their requests and translating it into appropriate investments and actions.
The PMX view
Because performance within the ESG area has been good, many discretionary managers are now entering the arena. Unlike these newcomers, PortfolioMetrix has been running ESG-focused portfolios for nearly four years, as well as incorporating ESG considerations into our core offering. Our track record means we have robust stats to support our performance claims.
We also recently published a white paper that has received praise from some influential independent experts in the sustainable economics field. It’s free to download and provides a balanced overview of all aspects of ESG investing, with the aim of providing everything you need to know on ESG in one document to help advisers engage with the subject.
