The second challenge facing advisers looking to the future of sustainable funds is to examine how client priorities may change in future. For example, the war in Ukraine may have changed some clients' perspectives on the ethics of investing in arms companies.
Elliot says that at Rathbone Greenbank they use a combination “of the feedback we get from clients and also the daily news flow. We monitor that very closely to see what is coming up, and what the latest trends are. We have more than 300 sub-criteria that feed into our process and we can always add to those, or tweak how much priority we give to each one”.
ESG frameworks
Ben Palmer, head of responsible investing at Brooks Macdonald, says: "Regulators around the world are developing frameworks to provide more structure and consistency in the ESG and sustainable investment markets.
"The EU has already implemented the SFDR regime, which provides guidance on the sorts of business activities that can be defined as ‘sustainable’ as well as a fund labelling system, which is intended to help investors understand the degree of ESG integration and focus. The UK is implementing a similar regime under its sustainability disclosure requirements proposals.
"It is difficult to say what the exact implications of this will be as the details, including the proposed product labelling requirements, are still under consultation.
"However it is clear that this will be a big focus for the FCA and multi-asset portfolios that currently define themselves as being ‘sustainable’ will need to assess their processes, underlying holdings, and reporting against the new framework to determine if they meet the SDRs' more prescriptive requirements within the new labelling system.
"We should know more later this year. More broadly speaking the move to align investment portfolios to a net zero pathway will have implications for the whole investment industry, whether sustainability-focused or not, making the assessment of an underlying investments transition to a net zero world a key part of analysis."
Palmer adds: “The above developments are designed to help in this endeavour, however we do not believe that advisers or any investor should solely rely on a product label. The world's sustainability challenges and the investment approaches that are developed to help address them are broad, multi-faceted and nuanced, with robust debate around what constitutes best practice.
"This is not necessarily a bad thing but it does make simple comparisons challenging. There is a temptation to fall back on ESG data scores, whether they are specific like carbon intensity, or broader like an MSCI or Sustainalytics ESG risk score. These scores can have their uses as part of a more holistic assessment of a fund however they do not necessarily give you the full picture and only provide a snapshot in time."
