Angelo Kornecki, technical director, RM Advance, considers the catapulting of the ESG/climate change agenda into the public consciousness and what the world of financial planning can do in response.
There’s never a quiet moment in the world of Financial Services, with changes in regulation, taxation, government policy and demographics all impacting the way we operate to ultimately provide the best outcomes to our clients.
I think it is safe to say that awareness from retail investors has never been as high around where their money is invested and more importantly the choices available to them. I completely appreciate that there are still plenty that are and that a lot more work is needed from the industry as a whole.
Increasingly more and more people are conscious of the impact their money can have on the world – cue the multitude of acronyms and different definitions of ethical and social investing (ESG, SRI, Impact, Sustainable et al)
In my opinion this can only be a great thing and it is something I am very much looking forward to watching grow and develop. I remember the times when ‘ethical’ investing came at a cost, with limited fund choice available to the adviser community and quite frankly relatively poor performance. Add to this a distinct lack of knowledge and awareness of the sector from both an adviser and client perspective and you can guess what, in the main happened? No one really recommended ‘ethical’ funds.
Fast forward to today and we are faced with a totally different landscape, one that with the right infrastructure and support from all key stakeholders is set to grow and develop into the new norm, and rightly so.
There are clearly many reasons for this shift, coming from global pressures to reduce carbon emissions and combat climate change to the need to improve corporate governance and board room dynamics.
Over the month of November pretty much every news channel in the UK was covering the 2021 United Nations Climate Change Conference or COP 26 for short. Without doubt the sheer amount of coverage catapulted the agenda into public consciousness and directed more conversation around what we are doing as a country and a global population to look after our planet
One real takeaway, amongst many, came in the form of the Glasgow Climate Pact; an agreement that aims to set out the global climate change agenda for the next ten years. A key aspect of this was laid down in a “Net Zero” target to be achieved by 2050 which aims to slow down global warming by setting a standard of greenhouse gas emissions (e.g. carbon dioxide).
Essentially this means that by 2050 each country that was part of the pact, needs to reduce their emissions so that they are not adding to the greenhouse gasses already in the atmosphere*. Ways to do this range from reducing the use of fossil fuels that produce CO2 when burned and switching to more renewable energy sources to planting more trees to combat the effects of the huge amounts of deforestation that have taken place over the years.
Each country has committed to playing their part and this means that vast amounts of money is required to improve the position and incentivise change. This in turn means the creation of jobs and certain industries will benefit.
For a country to hit their target then clearly there needs to be a buy in and commitment to change from the business sector and the general public. At a company level there is talk of forcing the larger players, which include some financial institutions to prove that they are changing their ways and are on track to hit their climate change targets.
There has never been a better time for fund managers to invest in these areas and bridge the gap between the retail investor and ‘real’ change. As a result, almost every major fund house now has a plethora of ‘ethical/sustainable’ options available to advisers and investors alike. Research from the FCA suggests that circa 40% of net UK retail fund sales in 2020 went into responsible investment funds**
However, more work is needed: Start the conversation and make a difference.
In the world of financial planning, there is a need from now for continued conversations with clients around what’s important to them, improved knowledge on the sector from the advice community and open dialogue with fund managers along with improved regulatory guidelines (the FCA launched their ESG strategy at COP26**)
The financial advice community is in such a fortunate position to be able to invoke real change. The future is bright; one where all stakeholders have a part to play, which includes the client and the adviser alike.
*What is net zero and how are the UK and other countries doing? – BBC News
