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Credentials, complacency, and capacity: How the ESG era is changing fund buy-lists

Welcome to Asset Allocator, FT Specialist's newsletter for wealth managers, fund selectors and DFMs.

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A tougher test

After a summer break, the Asset Allocator podcast is back. This time around we’re looking at ESG and how it’s transforming fund buying practices.

In recent months we've documented how the rise of sustainable investing is making itself felt in mainstream model portfolios. But it isn’t just a case of adding a few funds to a buy-list: there are real challenges for wealth managers to confront. Some of these will be familiar to DFMs, while others are only just emerging.

One issue is that the bar is being raised all the time. That’s the case for our podcast guest Sophie Kennedy, joint chief executive at EQ Investors. Her firm has now integrated minimum sustainability standards into its practices, which has meant changes to its purchasing decisions.

A similar situation applies to all those attempting to conform to, or show equivalence with, European SFDR requirements. If ‘article eight or ‘article nine’ funds – those that explicitly integrate sustainable practices – become the norm, that raises questions about conventional passive strategies’ future relevance.

There are other areas for fund selectors to monitor. Asset managers’ quest to stay relevant – and/or to comply with the likes of SFDR - has led many to be accused of greenwashing. The term implies a certain rush to jump on the bandwagon, in contrast to those providers who ratified their ESG credentials long ago.

But as expectations continue to evolve, Kennedy hints that some of the more established players may be resting on their laurels. By contrast, new entrants into the space can prove more receptive to buyers’ sustainability demands.

And whether they want to or not, wealth managers might soon have to branch out further: the vast sums of money flowing into the most popular ESG strategies suggests that soft closures won’t be too far away.

To hear more about these and other sustainable investing issues, click here to listen on Acast, here on Spotify, or here on Apple Podcasts.

You can also take a listen to our previous shows via those same links. As ever, if you like the podcast, please subscribe or follow via your preferred provider.

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