As freaky summer weather and increasing global temperatures are blamed on climate change, the heat is also rising for fund managers looking to launch new ESG funds.
On 19 July, the FCA sent a letter to Chairs of fund groups lambasting the poor standards of applications the authority is receiving for funds claiming to offer sustainable and responsible investment options.
The message is clear: stop the marketing hype and produce good quality investment offerings that are clear upfront about what they do. Doing this will allow investors to choose the right ESG funds to make their money really work for the good of the planet. Having recently attended an FCA roundtable meeting on the topic, I know this is something they are fully committed to tackling.
On top of that, the Chancellor, Rishi Sunak, in his recent Mansion House speech, focused on the government’s commitment to improving the quality of sustainability disclosure for existing funds, as well as plans for the labelling of investment options to make it easier for clients with ESG preferences to find the right fund.
Sunak also flagged a consultation with asset managers on the implementation rules that align with the Taskforce for Climate-Related Financial Disclosures (TCFD), which include product-level disclosure requirements.
Add to that, in May this year, the FCA announced it is consulting on a new Consumer Duty regulation, which will require firms to examine the outcomes consumers should be able to expect from the products and services offered by firms; take action to enable outcomes that align to expectations and assess how effective their actions have been.
Without a doubt, the heat is on for an investment industry keen to tap into the growing demand from consumers to make their money work in a positive way for the world and do less harm.
Research is vital for effective portfolios
So, what do we think about all these regulations? We believe it’s good news and can’t come soon enough.
For our range of ESG portfolios, we spend huge amounts of time researching funds to find those that really deliver on their promises. Given our focus on substance over superficial style, we dig beneath the marketing blurb to interrogate the managers about what their funds really offer. Our noses are finely tuned to detect any hint of greenwash and we won’t hesitate to walk away unless we are 100% convinced funds have integrity and the ability to meet their mandates.
Having better governance of the funds at the time of application will reduce the number that actually makes it to market, resulting in fewer but higher quality funds for us to research (a positive on both counts).
With so many events combining to raise consumer awareness of the perilous situation of the planet, we predict interest in ESG investing will continue to soar. This is no doubt why the FCA has been inundated by new fund applications, as fund managers race to offer badged funds to attract investors.
With anything new, it should always be ‘buyer beware’, which is why we invest so much time and effort to ensure the funds that are included in our portfolios have undergone stringent scrutiny to ensure they are robust and fit for purpose.
To find out more about ESG in investing, take a look at our white paper (you can download it for free here). It offers an unbiased overview of what ESG means, what it involves and how it should work to make the world we live in a better place.