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The responsible investment advice journey: selecting solutions

A new week doesn’t seem to pass without the news of a new responsible investment fund launch. A crowded market can make the review and selection process of solutions a difficult area to navigate.

There are currently no sustainable or environmental, social and governance fund sectors, but third-party tools and fund ratings can help in terms of screening appropriate solutions for different clients and help you match preferences to products. However, it’s the threat of greenwashing that’s perhaps the biggest challenge when it comes to selecting solutions.

How many shades of green?

For those not familiar with greenwashing, this is where a manager claims to be ‘green’, ‘responsible’ or ‘sustainable’ without backing those claims up. As well as an increasing number of new fund launches, we’re continuing to hear an increasing number of asset managers announce their intention to incorporate responsible investment approaches into their investment processes.

Unfortunately, some asset managers will purely see this as a means of monetising a trend. The 2 Degrees Investing Initiative actually backed this claim up by revealing that 85 per cent of funds labelled as ‘green’ have misleading marketing. Boring Money also recently highlighted that around 69 percent of advisers they had recently surveyed said they were worried about the reputational risk of recommending products whose sustainability credentials are later called into question. 

Financial planners need to remain vigilant and not fall for clever marketing campaigns. A fund’s name will not always reflect what it actually does from a responsible investment perspective. So it’s important to lift the lid and reach your own conclusions by integrating responsible investment considerations within your wider research and due diligence processes.

Responsible due diligence

Example areas to probe with asset managers:

  • UNPRI rating and latest assessment report.
  • Range of responsible investment policies.
  • Transparency of voting records and exclusion information.
  • Extent of ESG integrated within investment processes.
  • Longevity within the sustainable space.

This is by no means an exclusive list to use but collectively tugs at some significant questions and issues. There are no shortcuts when it comes to due diligence in this area and this probably reflects a whole new strand to researching funds.

Responsible investment is much, much more than just investing in a product. It’s also an ever-evolving part of financial planning and embracing this journey has the potential to deliver positive outcomes for both clients and the wider society.

To find out how Royal London can support you with responsible investment, visit: adviser.royallondon.com