With much ESG regulation set to be brought in and ramped up this year, advisers are getting on top of what this will mean for them and their clients, and had many questions for the third Responsible Pathway event held this week.
To start the ESG Clarity and Square Mile event, Mark Manning, technical specialist, sustainable finance and stewardship at the Financial Conduct Authority (FCA), outlined some of the regulator’s recent work in this area, such as its work on TCFD reporting, and most recently its consultation on SDR fund labelling.
See also: – SDR consultation: Using ‘transitioning’ in fund labelling is misleading
Manning said the FCA will be building on and learning from European regulation, such as the SFDR, and said the ISSB will “form backbone of corporate reporting standards of the SDR”.
In answer to a question on confusing language and how this, and new requirements, can be translated to clients, Manning said he “appreciate[s] the terminology can be confusing” but reiterated the FCA has proposed having two layers of disclosures as part of the SDR – one simpler for consumers and one more detailed – in order to avoid confusion.
Manning was also asked whether changes will mean the adviser suitability process needs to change. Although he said the UK government roadmap did signal rules for financial advisers will be forthcoming, he added “in many respects ESG is already in scope under existing rules” in needing to act in clients’ best interests and collect all relevant information.
Impossible SDG reporting asks
To end the Responsible Pathway event three experts spoke about the future of sustainability in asset management. Much of the debate on the future of this area is on how it is understood and measured and the panel homed in on the United Nations’ 17 Sustainable Development Goals – their utility, their challenges and why rainbow washing is rife.
Jens Peers, CEO and CIO of Mirova, an affiliate of Natixis Investment Management, said the SDGs are a “loose framework” yet many companies are being asked to report on them in an unrealistically specific way.
“Many companies are being asked to report on revenues’ exposure to SDGs. But how do you measure exposure to gender equality – it is something that is impossible to do. So those are warnings against using only that framework to measure sustainability exposure of a strategy,” said Peers.
Miranda Beacham, head of ESG – equities and multi-asset at Aegon Asset Management, pointed out the lack of oversight in how the goals are being used: “Lots of the targets underlying those goals are not really… things that most of these companies are having to deal with on a day-to-day basis.
“Looking at companies we have invested in, there is a well-known tobacco company in the UK that has aligned itself with eight of the SDGs, including health and wellbeing. It just doesn’t make sense.
“And a multinational oil company that is known for being very reticent on climate change transition strategies has also aligned itself to eight SDGs, including climate change.”
Beacham said her concern is the fact no single body oversees how the goals are used, meaning very little consequences for those who abuse them.
She explained her team overcomes the fact the SDGs are imperfectly suited to sustainable investing by performing a fundamental analysis of what each company is doing and how they are helping build a sustainable future. Beacham said Aegon will report on SDGs as an output but does not use them as an input in to its investment process.
