As such, advisers who do not explore or meet clients’ sustainability and climate change preferences are, in my view, currently putting themselves at risk.
FTA: Some advisers make a clear distinction between ESG and impact investing, saying they subscribe to impact investing but not ESG. What is your view on this?
JD: ESG and impact investment have come to be seen as quite different things. The label ‘ESG’ tends to be applied to funds that focus on reducing environmental, social and governance-related risks, whereas impact investments place far greater emphasis on real-world outcomes.
However, although generalising about strategies with terms like ‘ESG’ and ‘Impact’ is useful shorthand, it does not do justice to the diversity of fund options that are now available.
There are ESG-focused funds that exclude controversial and polluting sectors – and the companies held in impact funds are rarely perfect in every regard.
Given that advisers are duty bound to recommend appropriate investment solutions to their clients, ‘looking under the bonnet’ is a key element of giving suitable advice in this area.
FTA: What are your expectations and hopes for the ethical investment market in the coming decade?
JD: I expect to see significant growth across the full range of fund types that are variously referred to as sustainable, ESG and ethical as they meet different client needs.
My hope is that the strategies will remain diverse, but with broad agreement on the major issues of our time.
One of the biggest challenges of the next few years will be working through how we maximise the usefulness of scale the area has amassed – both in terms of delivering real-world benefits and delivering returns that ensure the area remains attractive.
The sustainable investment community has long wanted to achieve scale so that it can help steer us towards a better future – and in so doing protect and enhance asset values.
But this has not yet really borne fruit. We now have the scale, and much great work is being done, but the necessary grit is still somewhat lacking in many organisations.
The anti-ESG movement shows that we are heading in the right direction, as polluting companies and those with low standards now feel threatened, but there is a long way yet to go.
carmen.reichman@ft.com
