Learning the language of ESG isn't easy but practice will help

Almost 18 months on, with multiple levels of Duolingo and video tuition under my belt, I headed to Villefranche-sur-Mer in September for an immersion course.

It was a beautiful place and a very intensive method of learning. Did I emerge from it fluent in French? No, not at all, but I made good progress – although my grasp of the subjunctive still gets a bit slippery after deux verres de vin rouge.

My big takeaway was that there are no shortcuts to learning a new language. Instead, it is about accepting what you don’t know, making the most of the resources at your disposal to fill the gaps, speaking to experts and practising, practising, practising. 

The government wants to be a leader in disclosure on climate and sustainability

Many financial advisers working today have had to get used to several new languages over the course of their careers.

Ten years ago, they could simply tell a performance story: 'This Asia equity fund has a better track record than that one.'

Then they had to learn the language of diversification and risk-based investing. Over time, they became fluent. Today, the pressure is on to learn to speak sustainability – and advisers are having to have quite complicated conversations when they are still getting to grips with the basics.

In this column last month I wrote that more guidance was on the way and in the meantime advisers would need to do their best with what they had. Such is the pace of change that a significant piece of this guidance has now arrived.

The Treasury has published a new paper, Greening Finance: A Roadmap to Sustainable Investing. This is not yet the regulation we know is coming, but it does provide a clear indication of what that regulation will look like, and how it will be implemented.

The government wants to be a leader in disclosure on climate and sustainability. Its forthcoming Sustainability Disclosure Requirements will build on the commitment to adopt the Task Force on Climate-related Financial Disclosures' climate disclosures, and will require three tiers of disclosure: for corporates, for asset managers and owners, and for investment products.

Central to the roadmap is information. The chancellor wants investors to be equipped to understand "the full range of environmental risks they face and create".

That information should be "a key component of every investment decision", and climate and environmental considerations should be "central to every investor’s risk and return calculations".

As Ben Caldecott of Oxford University writes in the foreword to our recent guide to sustainability, the role of the adviser in this is vital.

Advisers are responsible for the investment of some 60 per cent of pension flows in the UK. Companies and asset managers can be held to high standards of behaviour and disclosure; consumers can buy wholeheartedly into the idea of investing for a better world.

But without the adviser in the middle to interpret the disclosures and ensure that capital is channelled in directions that support the carbon transition, it will all be for nothing.

That means advisers need the systems and data that will enable their clients to make informed decisions. And, most importantly, they need to be able to understand the data and its implications.

A sustainability labelling system similar to those used for heating systems or appliances will be readily digestible for consumers, but will necessarily simplify away a lot of complex information. Advisers will need to be able to unpack that for their clients.

This is not an easy task. I studied environmental science and geography at university back in the late 1980s, and we were already talking about global warming and climate change. In more recent times I have set aside a few hours a week to get to grips with the subject – the role of the various greenhouse gases, the different measurements of carbon intensity, the possibilities for carbon capture. It helps when I’m talking to experts, and yet of course I am still only scratching the surface.

Fortunately, help is out there. The CFA Institute, for example, has developed a certificate in environmental, social and governance investing. Companies like us, as well as many asset managers, are sharing their knowledge through training academies and conferences.

And with recognition growing over the past few years of the centrality of the adviser to the journey to net zero, we can expect the support available to continue to improve.

Later this month I’m heading to Paris to watch the rugby. While I’m there, I hope to engage some friendly locals in conversation to acquire some new vocabulary and improve my fluency. We are all, especially in this industry, lifelong language learners. Let’s keep plugging away.

Ben Goss is chief executive at Dynamic Planner