Clear visual delineation of labels will also be helpful.
If you have ever purchased wine that appears to have won a gold medallion only to discover that it was the wine-maker and not the bottle you’ve purchased that merited the medallion you will appreciate how important this is.
This example also serves to illustrate the importance of avoiding confusion between funds/mandates with approaches.
Clients may be looking for a best-in-class manager, but it is more likely that their interest lies with the approach of the investment vehicle.
The IA consultation proposes that “sustainable investment approaches” is defined as “integrating ESG”. The lack of robust definition for ESG makes this an easy box for investment managers to tick and distracts from the fund/mandate/strategy level approaches where the substance and value for clientsis found.
It may be that connecting with work being undertaken by other professional bodies, such as the Principles for Responsible Investment, could create a cross-industry standard.
Is the gold standard measuring impact?
Increasingly, more players in the market are saying that it is. It is not a simple task to provide impact measurement and for that reason alone investments that currently offer them are likely to be the best-in-class.
In time, if clients are demanding the impact of their portfolios of investments, advisers will push back on investment managers to help them provide this and that will change. But to what aim? If impact measurement is valued by clients how will advisers incorporate the results within their analysis of funds and recommendations to clients?
- Many people are specifically looking for ESG factors in their investments
- The investment industry needs to revise its terminology
- Advisers need to be much more mindful of this development
What does the future hold?
Interest in impact does not look likely to wane.
The challenge today is how to meet that interest in a meaningful way.
Clearer definitions, labelling and measurement will be great leaps forward for the industry in making that happen.
For advisers, the challenge will be in understanding the extent to which impact sits within the existing framework of risk appetite, investment returns and financial objectives.
The risk for the industry could come from moving too slowly in the consideration of investor appetite for a new approach that considers both growth and positive impact.The risk for advisers is how to move ahead when the framework in place seems to be behind that appetite.
Meg Brown is managing director of business development at Impax Asset Management