By Mario Mantrisi, Chief Knowledge and Product Manager at Kneip
Globally, we’re seeing a domino-effect of industries becoming more ethically aware.
Whether it’s climate change, anti-tobacco, or human rights; consumer and business decisions are all being influenced by our ethics. Over the last twelve months, the fund industry too has become increasingly ethically-led, with clients wanting their money to be used for good as well as generate returns.
This surge is even more prevalent amongst millennial investors– with those aged under 40 more interested in environmental social governance (ESG) investing than their older peers. Furthermore, more than two-thirds of investors under 30 would prefer that their investments have a positive social or environmental impact.
Thought to total $30tn, the global responsible investment market is thriving. In July, the Investment Association (IA) recorded an increase in popularity of ethical funds in the UK, bringing the sector’s total funds under management to £20bn. This increase, particularly around environmental concerns, has led to the Governor of the Bank of England, Mark Carney, saying that companies and industries who are not moving towards zero-carbon emissions will receive less investment and go bankrupt.
Despite the supposed popularity of ethical funds, lurking beneath the surface is a poignant question making investors and fund managers alike increasingly unsettled – just what is an ethical fund and who has the right to declare it so?
With no clear definition of what is or isn’t ethical and very little regulation in place to ensure accountability, investors have little clarity about what they’re buying and fund managers aren’t much more clued up. Such widespread confusion brings with it a whiff of future scandal and yet little has been done to lobby for higher disclosure standards.
So what can fund managers do to make sure that the advice they are offering their clients on environment, social and governance funds is right?
Understand what your client means by ethical
Be consultative. Ethical has very different meanings for different people so understand what your client is opposed to and what they are most passionate about. However, always work to ensure that their decisions are informed. For example, globally we’re more environmentally aware than ever before leaving some people against certain organisations and industries. But, if a successful oil company is proactively investing in offshore wind farms, your clients may be open to investing in them.
Invest in technology
To invest in ESGs that are also providing sizeable returns, you need to have a 360-degree view of what is going on in the market. You’re only going to be able to achieve this if you have the right technology at your disposal, fortunately, the regtech industry is thriving and offering increasingly innovative tools.
Regtech tools, such as fund data management platforms, can prove invaluable as you will be able to view accurate data on how your funds are performing and provide your clients with the knowledge they need to make informed decisions on their wealth and assets. With regulations constantly evolving, data platforms will also ensure that everything you are doing is complaint giving you confidence in the funds that you are working with.
Do your research
People want to know that their money is doing good in the world and the funds aren’t a front for something sinister. Do sound research on the sustainable development goals you have identified and demonstrate to your investors how their support is helping towards a social good Younger investor who are now handling more wealth value this, so it’s paramount that you are offering transparent advice.
This industry plays a vital role in how huge sums of money are allocated. Collectively, we have a responsibility to advise on what will provide clients with the biggest returns – both financially and morally.