To that, Carney adds another concept: the tragedy of the horizon. Because businesses do not look beyond return on investment, and politicians do not look beyond their current term – and investors do not look beyond the traditional investment horizon – protecting the environment is so often a problem for another day.
Increasingly, investors tell us that sustainability matters to them. When asked about their attitudes to ESG, 70 per cent place themselves somewhere on the continuum between ‘I care somewhat’ and ‘I care a lot’. Those clients want to manage ESG risks, and they want to know that they are doing some good with their money.
But for the adviser the complex reality means there are some important questions to ask.
Is the goal to achieve the lowest carbon portfolio possible now? To invest in companies with good carbon transition plans in place and avoid the ones without?
Is the goal to invest in technologies with the potential to get us to net-zero even if that means higher emissions and externalities in the short term? What if that means giving up some returns? Can clients afford to look beyond their own investment horizon?
'Poor-quality' ESG fund applications addressed
While I was away, the Financial Conduct Authority sent a letter to asset managers warning them about the high volume of ‘poor-quality’ ESG fund applications it is receiving. The regulator set out some welcome guidance for fund managers, and will ultimately develop its own taxonomy to sit alongside the EU’s Sustainable Finance Disclosure Regulations.
But in the meantime, advisers also need to be able to help clients navigate an increasingly complex and crowded sustainable funds marketplace and understand their real choices.
The lesson from Kefalonia is that none of this is simple, but as a result, it is a place where advisers can add real value.
Helping clients build portfolios that balance their personal financial needs with their values and goals for the world is a task for which relationships, experience and insight are vital – and which, if done well, can help those relationships endure and grow well into the future.
Ben Goss is CEO of Dynamic Planner