Praise be for ethical standards
Jonathan Flint, Chairman
It’s unwise to ignore someone with a strongly held view, especially when it comes from a client who is passionate and knowledgeable about music. Out of the blue, on a call this week, this tune-savvy client challenged me to name a cover version of any original song that was better than Jeff Buckley’s classic, ‘Hallelujah’.
There’s a host of classics that have been reworked superbly that could all vie for the ‘Best Cover Version of All Time’ award – Soft Cell’s Tainted Love or Sinead O’Connor’s Nothing Compares 2 U, for example, but opinions on these matters are deeply personal. My favourite is Peter Gabriel’s haunting rework of Bowie’s Heroes but it’s an endless debate, although in case the client is reading this, Hallelujah is a very good shout.
The challenges of credibly reworking and reinventing old standards is also highly applicable to the fund management industry right now, with many household name fund managers working hard to reposition their brand and proposition to focus on environmental, social and governance (ESG) issues. The concept of investing in companies that help the environment, contribute to society and behave ethically has been around for decades but originally pioneered by only a few outlying managers.
Today, the picture is entirely different and growing much greener, and while some leading fund managers have established very strong credentials and past performance data to reinforce their position, for others pivoting to ESG is a huge challenge in terms of process, philosophy, performance and communication.
Figures from the Investment Association show that £19 billion was invested in ethical funds last year, a very clear signal that investor demand is rising at a pace with more and more private investors looking to align their finances with their values. A recent report by PwC forecasts that by 2025 nearly 60% of mutual fund assets in Europe will be held in funds that consider ESG factors. In addition, a staggering 77% of institutional investors said they plan to stop acquiring non-ESG products within the next two years.
Ultimately, as private investors, over time we will eventually all become ESG investors by default. But this may take several years. The important question from an ethical and financial perspective is whether to sell all your current holdings in shares and funds that ignore ESG issues or wait for them to slowly turn to deeper shades of green as companies and fund managers embrace better long-term behaviours.
Savers and investors who wish to take action now to refocus their ISAs and long-term pensions savings towards more caring and greener considerations face a fair few challenges. The first is cost. Selling some or all of your investments to realign them around ESG criteria is going to be quite expensive – good advice is not cheap and there will be charges in relation to selling and buying new funds.
The second is information and this hinges on communication and getting the message across to investors. Currently, there is very little consistency in relation to how ESG data is disclosed and how it is interpreted by fund managers to inform their own investment decisions.
The asset managers who rise to the challenge of providing standard definitions around what is meant by green, ethical and sustainable will be the ultimate winners. And then we’ll all feel like singing ‘Hallelujah’.