By Bordier UK
The COVID-19 pandemic and the global response to fight it has steered our lives, economies and financial markets over the past year.
Whilst the longer-term effects are still being unraveled, it has become clear that the coronavirus pandemic has given greater prominence to the environmental, social and governance (‘ESG’) agenda; key issues such as tackling climate change now seem much more achievable as government policy, finance, investment and changes in societal behaviour all unite for the common good of creating a more sustainable future.
Naturally, the prominence of ESG in the media and the numerous international ‘green’ policy initiatives that have been announced across the globe have sparked a growing interest from clients in ESG investing or what we would term, responsible investing. As a result of this interest, ESG or responsible investing has now become a key criterion for advice firms when building their own centralised investment proposition (‘CIP’).
So, what does this mean for advisers and their investment propositions, and what challenges are they facing?
What is most apparent is that clients care about the broad issues represented by ESG, however their level of knowledge when it comes to understanding just what ESG means and how it is applied to the investment universe is, in general, in need of adviser support and guidance. Add to that some confusing terminology and it is often difficult for clients to accurately describe what their ‘ethical’ or ESG criteria are.
As an experienced CIP provider, we’ve found that it is important for an adviser firm to have access to the right resources to help inform their clients on what is meant by ESG or responsible investing. Only then will a client be able to understand how their sustainability beliefs fit in with their investment objectives.
We strongly believe that client friendly literature, such as the Bordier UK’s Approach to Responsible Investment guide, can help clients understand responsible investment and how its roots lie in strong corporate governance, which extend beyond the more prominent socially responsible or ethical investment concepts that are frequently in the public eye.
Importantly, responsible investment is more far-reaching and can be incorporated into any investment strategy: it should be seen as a holistic approach that aims to include any information that could be material to investment performance. Responsible investment does not necessarily require ruling out investment in any market, sector or company. Rather, it informs the investment decision-making process to ensure that all relevant factors, both financial and non-financial, are accounted for when assessing risk and prospects for return.
So now that an adviser’s clients understand what responsible investing is, how can adviser firms integrate ESG within their centralised investment propositions?
As with every proposition, there will be clients whose individual sustainability beliefs (i.e. ‘dark green’ clients) result in advisers having to move back to the more product-centric recommendations. However, from our experience and for the majority of clients, a proposition that has responsible investment/ESG factors embedded within its investment process is key and can cater for most client needs. This enables advisers to recommend strategies that not only alleviate client concerns over ESG factors but that also have the ability to achieve long-term investment returns.
Thorough due diligence is required, along with a flexible approach to investing in both actively managed external funds, where fund managers are taking active decisions regarding share ownership (as opposed to investing in line with a specific benchmark) and lower cost passive funds. Active managers, by their very nature, tend to have very close relationships and engagement with investee companies, in contrast to the managers of passively managed funds (such as trackers or exchange-traded funds) where there is little or no corporate engagement.
Through both our initial and ongoing due diligence process in relation to the funds we select for our clients’ investment portfolios, we are satisfied that the external fund managers to whom we allocate capital are incorporating strong disciplines within their own investment and decision-making processes in relation to ESG matters.
Indeed, the majority of the funds being utilised by us to construct our range of investment strategies are being managed by firms that are signatories to the United Nations-backed Principles for Responsible Investment (‘PRI’) initiative. The Principles are a voluntary and aspirational set of investment principles that offer a menu of possible actions for incorporating ESG issues into investment practice, and we would strongly recommend that advisers examine the UN PRI [https://www.unpri.org/] as a basis for satisfying most clients’ sustainability or ESG requirements.
Of course, as the topic of responsible investment is so broad, evolving and often quite open to interpretation, there should be no hard lines in terms of how it is implemented and addressed in any investment process. However, it is interesting to note that responsible investment is already strongly embedded within the institutional world and in particular, within the funds we select for clients’ portfolios.
When looking to create a responsible CIP, advisers should look for an experienced investment partner who can incorporate ESG factors within their investment process to help future-proof their proposition.
For the past 175 years, the Bordier Group has helped preserve clients’ wealth, growing and safeguarding it for future generations. Investing responsibly is integral to the philosophy and values on which our services are based and so we believe that, along with our experience of designing, building and implementing CIPs, we can help advisers provide their clients with a proposition that not only delivers long-term investment returns but that also has a meaningful impact on protecting and enhancing our world for the benefit of those who follow in our footsteps.
If you would like to learn more on how we could help you incorporate ESG factors within your proposition or wish to receive a copy of Bordier UK’s Approach to Responsible Investment, please contact a member of our team on 020 7667 6600 or email firstname.lastname@example.org.
Bordier & Cie (UK) PLC (‘Bordier UK’) is authorised and regulated by the Financial Conduct Authority (‘FCA’) Registered Number: 114324. Incorporated in England No.1583393.
Bordier UK is a specialist investment manager dedicated to providing portfolio management services. Bordier UK offer Restricted advice as defined by the FCA, which means that if Bordier UK make a personal recommendation of an investment solution to you, it will be from Bordier UK’s range of investment propositions and will reflect your needs and your approach to risk.
This post is not intended as an offer to acquire or dispose of any security or interest in any security. Potential investors should take their own independent advice to assess the suitability of investments. Whilst every effort has been made to ensure that the information contained in this post is correct, the directors of Bordier & Cie (UK) PLC can take no responsibility for any action taken (or not taken) as a result of the matters discussed within it.