We need to make ESG investments more comparable

Stuart Hutton

Stuart Hutton

In recent years there has been a clear increase in the interest in the ethical impact of investments.

  As we see more wealth transferred from the baby boomers to the younger generation, this focus on the ethical and sustainable context will only become more influential.

We are also seeing the convergence of all sorts of ethical and sustainable investment vehicles towards a common ground where they can add value to both the investor and the kinds of businesses they are investing in.

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After all, sustainability is an important part of success.

There has been a growing influence of this way of thinking in recent years, as demonstrated by the undeniable popularity of Sir David Attenborough and the discussions brought up by the recent Extinction Rebellion.

As a society we are increasingly aware of our responsibility to meet the future needs of the planet and its environmental and social issues.

However, more needs to be done to help foster this influence in the financial sector.

There is an immense shift needed in the way we view the world, but also how we manage the expectations around the ethical impact of our investments.

As an investment manager, it is starting to feel a bit like a game of tennis that is destined to end in a draw.

Of course, we are the umpires.

The current sustainable investment market is leaning further into ESG to leverage the investors into the space, and the investors are starting to lap it up.

The problem we have as investment managers is: how do we make sure that the recommendations we are making on an ethical basis are truly those our individual clients want?

These two trains of thought are constantly going back and forth, and it is our responsibility as wealth managers to manage this debate carefully.  

One solution is how governments and regulators are becoming involved.

There is no doubt that regulators have evolved clear reporting standards in terms of how financial standards need to be met.

However, we do not have anything that is currently comparable for the less tactile non-financial information that is becoming more important to ethical investors.

This means that the marketplace needs to see how it can provide more relevant data and provide stronger levels of comparability.

This would allow for independent audits and encourage standards to develop to the point the industry can self-regulate.

Although this may seem rather altruistic, there is no doubt that there is immense long-term benefit to those who work towards standards setting and aligning with the potential regulation heading this way.

Once the market can self-regulate, any government action is automatically seen in a more constructive manner and viewed as enacting on the solutions the market is seeking.