The Investment Association has launched industry-wide definitions on responsible and ESG investing in an attempt to create a common language for advisers, fund managers and consumers.
The definitions, published today (November 18) by the trade body, are based on a consultation with more than 40 investment management firms representing £5trn of assets.
According to the IA, consumers could easily be left “confused” or “unable to find the investment opportunities” that match their responsible investment goals due to the variety of terms and phrases, used in a number of different ways, that are attached to investment funds.
Investment managers are being encouraged by the IA to adopt the framework and definitions which the trade body hopes will reflect the wide range of responsible investment approaches and commonly-used terms.
Chris Cummings, chief executive of the IA, said: “Today’s savers want to understand the impact of their investments on the world around them. One significant barrier to the growth of responsible investment has been the lack of a common language and framework that describes and categorises these approaches and products.
“The agreement of industry-wide definitions provides consumers with that much-needed clarity and choice. The investment management industry can now give its customers a clear picture of the opportunities available to them and the confidence that their chosen product matches their expectations.
“This is a new milestone in making it easy for people to choose a responsible investment.”
Moira O’Neill, head of personal finance at Interactive Investor, said she welcomed the idea of having a common language but stressed many investors would still be unable to speak it as the framework included words like 'positive tilt' and 'norms'.
Rebecca O’Keeffe, head of investment at Interactive Investor, added: “The IA’s attempts to come up with a framework for common language within the ethical investing world is to be welcomed – however, it cannot solve the inherent tension within the industry as to what makes an ethical stock and it does not address the problem of the huge subjectivity that surrounds ethical investing.
“One of the big problems that affects all attempts to identify ethical funds into broad generic categories is that they cannot differentiate between shades of green within individual groupings.
"For example, having an ‘exclusions’ category is obvious and is fairly common across the industry. However, it doesn’t discriminate between those funds that screen out two thirds of sectors and stocks, versus those that have a more nominal approach and screen out less than 5% of investments."
Earlier this year advisers were warned to “look under the hood” of funds claiming to be sustainable at ‘headline’ level to note the potentially substantial differences in funds purporting to be ESG.
imogen.tew@ft.com
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