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This may be the first year many people make good on their New Year’s resolution. Less attainable goals like shedding ten pounds, doing 50 push-ups a day and making a week’s worth of packed lunches Sunday evening seem to be giving way to promises to reduce plastic use, buy local and recycle clothes. We have already seen record numbers sign up for Veganuary; discussions with colleagues, friends and family increasingly reflect heightened consumer cognisance of all sorts of environmental issues, from garbage islands in the Pacific to the carbon footprint of an avocado.
Yes, 2019 might just be the year that reusable coffee cups and eco-friendly cling film become trendier accessories than a pug or a yoga mat. But will it be the year that investors finally embrace sustainable investing en masse?
There are a few things working in sustainable investing’s favour aside from the collective consumer wake-up increasingly termed the ‘Blue Planet effect’. For one, the regulatory intent is there: last year the Department for Work and Pensions clarified that pension trustees should consider Environmental, Social and Governance (ESG) factors as part of their fiduciary duty to scheme members, and the FCA is currently garnering opinion industry-wide on climate change and green finance through a discussion paper. Data provision is improving too, with portfolio managers now able to assess a whole manner of data points from companies directly and the likes of Sustainalytics to help them assess ESG-related risks. And demand from UK institutional and retail investors is growing, albeit not as quickly as some investor sentiment surveys would have you believe. By our numbers, roughly half of pension schemes and consultants have a more positive opinion of ESG investing than a year ago; a tenth of private investors claim to have a responsible investment of some description.
Yet there is still a long way to go to convince investors that sustainable investing is more than a fad, or a New Year’s resolution destined to be abandoned six months down the track. Currently, a particularly potent headwind to converting investors is market volatility. For relatively newly-launched ESG, sustainable and positive impact funds, these bumps in the road are unhelpful in proving their value. Plus these funds can be more growth and small-cap biased than peers, depending on the interpretation of ‘sustainable’ implemented in the investment process, which may have resulted in sharper performance falls recently.
Unfortunately for wealth managers and financial advisers, performance shocks have coincided with the new MiFID II cost transparency requirements. Effectively, a £1m client is being told he/she has paid £7,000-£10,000 to lose 8% of their invested money in 2018. If wealth managers get spooked into short termism, the imperative to invest in developing technologies and away from the ol’ reliable dividend-paying tobacco and oil companies could be put on the backburner.
Despite cynicism and headwinds, we continue to believe in the long-term investment case for sustainable investing, having followed growing momentum in our research over the past few years and spoken with scores of thought leaders on the subject. As part of our ‘commitment to the cause’, we will be publishing our first Responsible Investment Review in the spring, which will detail the market landscape, investor understanding and interest across retail and institutional audiences, and highlight the asset management responsible investment ‘heroes’. One of Research in Finance’s New Year’s resolutions is to share more of our thoughts and findings, so expect to see sustainable investing musings and research snippets from us on a weekly or fortnightly basis.
The Responsible Investment Review is Research in Finance’s annual written report into the fast-developing Environmental, Social and Governance (ESG) and broader responsible investing market.
The first issue is due for publication in spring 2019 and will include insight from all angles:
• Surveys measuring appeal, preferences and take-up among professional and private investors
• Deep-dive commentary from industry experts, including fund ratings agencies, fund buyers, fund managers and stewardship specialists
• Analysis of ESG/responsible assets, flows and performance
• Comprehensive review of government regulation and trade association guidance supporting the growth of ESG investing
• Findings-led predictions on the growth potential for responsible investing
Research in Finance is uniquely placed to produce such a report. We have access to each audience via our own proprietary panels.
(Only 12 delegate spaces remain at the breakfast briefing)
Subscribing firms will receive 2x report copies, soft copy for internal use, plus the opportunity for two of your team to attend a breakfast briefing where RiF will present some key findings at their London HQ – space at this briefing is limited after a successful launch phase.