Sustainable Investing  

How DFMs are incorporating sustainable investing

This article is part of
Guide to Discretionary Fund Management

How DFMs are incorporating sustainable investing

If you consider what the average investor was concerned about three years ago it probably would not have included the plastic life-cycle and climate change. 

As a result, sustainability has moved up the agenda of every professional in the investment business and discretionary fund managers (DFMs) are not immune.

According to Sarah Waring, client and proposition director at Quilter Private Client Advisers, IFAs look for a good track record, competitive fees, and an investment manager who will truly look after their clients needs, while sustainability investing is normally driven by a client’s preference, rather than by the adviser’s own personal preferences.

Ms Waring adds: "We are starting to hear a lot more from our clients about this, and expect the trend to continue to increase."

So, this is an evolving space and the wealth management and advice parts of the financial services industry are playing catch up to some extent. 

The heightened awareness has arisen as consumers, regulators and governments are more focused than ever before on environmental, social and governance (ESG) issues, something which historically has been more of a concern for institutional investors.

Tom Sayers head of investment solutions at Parmenion says: “The way we are positioning this with advisers is that it is absolutely vital that, not only do you provide this as an opportunity to clients for those that are ethically minded, but it is highly likely that the younger generation that inherits a lot of money is going to want to realign their investment in a much more socially responsible and ethical way.”

At Parmenion Mr Sayers says advisers have access to a range of tools to help decipher the right approach for an individual client.

He adds: “We must guide people into having the knowledge of what they are investing in and that is where we are seeing a few people coming unstuck.”

At Quilter Cheviot, Gemma Woodward director of responsible investment says ESG is a metric that the firm considers when it is making investment decisions. 

“For example, we may still invest in a company with poor governance as we believe we can influence change, but this will be factored into the overall investment thesis,” Ms Woodward adds.

“ESG is another metric that is used alongside many others; in the past ESG metrics were often referred to as non-financial factors – this is no longer the case. For example, how a company is managing its carbon emissions would be seen as a financial factor for its future sustainability.”

Quilter Cheviot tends to split the terms. 

Ethical and ESG

Ethical is when a client wants to avoid certain activities or sectors and tends therefore to be a negative screen.