This series of responsible investing articles was not designed to be an opinion piece, rather more to bring some attention to the breadth and nuance of responsible investing.
However, what we do know is that becoming a signatory to the PRI is no longer a differentiator, it is the standard, but the discussion has also moved on. The PRI are really about enhancing returns and better managing risks. They are not connected to the UN SDGs, so are not focusing on a broader, more impactful and/or ethical approach. For example, in relation to climate change, PRI is saying “take account of climate change to reduce the long-term risk of your portfolio”, it is not saying “take account of climate change because we should care deeply about how we care for our planet and the world we are passing to future generations.”
When we extrapolate this into the world of financial advice, where does this lead us? Financial advice is generally principles based, so advisers need to assess if ‘suitability’ includes taking account of non-financial factors, and how these may fit a client’s values. Advice must be suitable, and an adviser must have reasonable grounds for the advice. If the advice includes a comparison of managed fund products, an assessment of each managed fund should be undertaken.
Every year, Research IP runs our Fund Manager of the Year Awards, and in 2020 we introduced the Responsible Investment Manager of the Year. At the time, the universe of Fund Managers was fairly limited, but we knew that the space would expand with time, and it was important to recognise excellence in the industry.
Looking forward there are many unanswered questions as responsible investing advances. When will we hit net (carbon) zero? How can investors and fiduciaries respond to biodiversity and natural capital under the Taskforce on Nature-related Financial Disclosures? Will the responsible investment focus widen from just a manager’s funds to also include the manager’s underlying business? How do standard strategic asset allocation (SAA) models account for sustainability, can they? How will we define, measure and report on ‘impact’ to ensure tangible benefits result from each dollar invested? Will we see better non-financial reporting more broadly to enable more quantifiable ‘impact’? Hopefully the information within Beneath the Surface of Responsible Investing helps shed some light on this far-reaching topic. Research IP helps many of our consulting clients navigate the maze, but no one client is the same. We will continue to share examples of responsible investing in action, while also continuing to dive deeper into specific areas of this paper. In the meantime, please reach out if you believe we could be of assistance.
The latest version of Beneath the Surface of Responsible Investing can be found here.
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