“We must have the clarity of vision to see the difference between what is essential and what is merely desirable”**
The proliferation of funds, RI terms and content, means that understanding and differentiation is an issue for intermediaries, as is transparency.
Research in Finance (RiF) has now completed its third annual UK Responsible Investing Study (UKRIS). The 215 participants in this third wave were split between discretionary fund managers (DFMs) and investment advisers (IAs). The study has delivered results aimed at both intermediaries as well as institutional investors – the results for the latter audience will be available from RiF shortly.
For the retail intermediary study, the overall trend showed that responsible investing is now a key part of the conversation between intermediaries and their clients. In fact, UKRIS’s findings indicated that client-facing intermediaries are increasingly likely to proactively bring up RI with clients (this was the case for 80% of them vs. 71% two years ago and 59% a year ago). While this is encouraging evidence of progress as to the understanding and adoption of RI, there is, however, an increasing volume of ‘noise’ around the topic, which is making it more complex for intermediaries, particularly IAs. Their understanding and knowledge may well be ticking up, but the proliferation of funds, RI terms and content, means that understanding and differentiation is an issue, as is transparency.
The term “through a glass – a mirror – darkly” means to have an obscure or imperfect vision of reality. This seems to be of relevance in the RI space, as the results of our study revealed. The UKRIS findings led to the conclusion that there needs to be more clarity and transparency with respect to both terminology used as well as the RI funds being offered by an ever wider range of asset managers. One of the main barriers to RI that was mentioned was ‘greenwashing’ which was raised as a concern by an increasing number of intermediaries in the UKRIS third wave, as is shown in the chart below. Those that had actually identified greenwashing rose from 7% in 2019, to 16% in 2020 and, in this latest study, reached 20%.
Greenwashing is usually defined as companies conveying a false impression or providing misleading information about how their products are environmentally sound. Although some of the environmental claims might be partly true, companies engaged in greenwashing typically exaggerate their claims or the benefits, in an attempt to mislead consumers.
The asset managers who are perceived to be getting RI ‘right’ – by providing comprehensive information, such as case studies to highlight action and influence they have undertaken, as well using engaging infographics and visualisation tools – stand to benefit. This approach should increase their credibility and enable them to build on their fund range as well as their RI philosophy with certain participants clearly stating that they preferred to work with asset managers who have been involved in RI “for years”. One DFM stated that “The RI items I have seen that have impressed me take this beyond simply how the fund management company allocates investments. It helps if they practise what they preach by bringing this level of responsibility into the day-to-day managing of their businesses, building their offices and so on”.
UKRIS also identified a number of asset classes and sectors where there seems to be insufficient supply of RI funds for intermediaries to access. These gaps focus on funds from emerging markets, as well as fixed income funds generally and, to a slightly lesser extent, property funds.
Jack Dominy, Research Manager at RiF, stated that “In today’s complex and ‘noisy’ world, transparency is critical when brands are trying to communicate with their customers. This is true in all sectors – from consumer goods to the asset management industry – in order to gain cut-through, remain top of mind and be seen as credible. Asset managers should demonstrate their RI philosophy and expertise through case studies and well-explained reasoning behind engagement actions, in order to provide that credibility and clarity that intermediaries seek.”
You can hear more from Jack Dominy at The Sustainable & Social Investing Conference which takes place on Friday 20 May in London. This one-day exhibition and conference consists of a conference stream including professional investors and a wide range of sustainable specialists. There is also a seminar programme, a company zone with early-stage businesses finding sustainable solutions as well as an exhibition hall and an investment café. The event is aimed at private investors who want to learn more about sustainable, social and ESG investing. Find out more here https://www.sustain.social/.
If you would like to know more about the UK Responsible Investing Study and how to subscribe, please contact Toby Finden-Crofts or Richard Ley. Options exist to purchase Wave 3 (fieldwork December 2021 to January 2022) or to become a full member with access to the online community for Wave 4 by expressing an interest now.
To discuss any points raised in this article please contact Catherine McNaught, Head of Content.
*Apostle Paul – to have an obscure or imperfect vision of reality