Impact Investing Forum
London. Nov 18-19. (Virtual)
ESG metrics on AoVs: ‘Positive and brave’ or ‘green-value kumbaya’? Investment WeekESG metrics on AoVs: ‘Positive and brave’ or ‘green-value kumbaya’? Investment WeekESG metrics on AoVs: ‘Positive and brave’ or ‘green-value kumbaya’? Investment Week
Others investors believe that the wider adoption of this practice could lead to greenwashing, rather than reduce it. They warn that AoVs may become unappealing marketing tools “full industry talk”. UK asset management company Schroders informed Investment Week that it will include sustainability data for each fund that uses its proprietary tools in its next AoV. Sustainable Festival: Schroders’ ESG chief warns against third-party sustainability ratings. The announcement comes two months after a damning FCA report. It stated that it expects “more rigorous” from asset managers’ AoVs. It stressed that the seven-pillar guidelines set out by the regulator are “nonexhaustive” and that many firms have not met the “minimum consideration” requirements when reporting on clients’ value. Steve Kenny (commercial director, Square Mile Investment Consulting & Research) stated that ESG and culture have been the unwritten pillars that all firms must include. “A company’s culture pervades all, and a company’s attitude towards ESG forms part of that. This is a positive move by Schroders, as society, regulators and the government all want to embrace responsible capitalism. The news from Schroders also came less than one week after Boring Money’s survey found that two-thirds (or more) of advisers were concerned about the backlash from recommending funds that have been accused of greenwashing. Holly Mackay, the founder of the firm and managing director, said that transparency is the biggest obstacle to sustainable investing. She said that she thought Schroders’ announcement was positive and that more managers should follow her lead. “ESG is an important part of value assessment from an investor perspective, but it’s one that very few firms have submitted to date. This is partly because many managers have stayed to the FCA’s non-exhaustive’ list of things to consider, but also because many managers don’t have the ESG credentials they want. Mikkel Bates, regulatory manager at FE Fundinfo, stated that it is likely that other asset managers will include ESG data within their AoVs. He stated that there is a trend in the industry to require firms that claim ESG credentials in their funds to prove it. It is also likely that ESG will become a marker for value overall, so Schroders may be anticipating this by including it in their entire suite of funds. “With the possibility of additional measures hanging over them,” some fund groups might consider doing this to show the FCA that they have listened to their criticisms and are taking action. Kenny stated that Schroders had “thrown down the gauntlet for the rest” of the industry. “I applaud them” for this. He explained that this was not only brave as it means they can be held accountable but also exactly what the regulator wants to see. Schroders is showing that it embraces the spirit and intent of regulation rather than just ticking boxes. Some industry members have raised concerns about the inclusion ESG credentials in AoVs. However, Bates warned that the intended audience, which is the end investor, has “largely not read” previous AoVs. “Lengthening these reports which are in many cases already quite substantial is unlikely to have desired effect on getting more investors to see them,”
He added. JB Beckett (iNED for Royal London, SVM) and author of #NEWFUNDORDER said that AoVs are at risk of “narration taking over assessment” and are “more marketing tools than any other”. He pointed out that there is a wide range of data available that is hard to judge and rife in subjectivity and variance. “Add any executive who is interested in greening themselves and boards will be gathered into some green-value Kumbaya. Bates said that the subjectivity of “ESG” itself could be a problem as it has become “the standard term” for a wide range of investment strategies. He said that investors’ ideas of ESG funds will differ greatly from one another, so it will be difficult for firms to make AoV reports relevant to all investors who have different personal values. “As there is currently no standard for sustainability in reports, there won’t be a consistent approach. This will make it unlikely that it will have much impact on greenwashing in the short-term. Beckett believes that the move will actually increase the risk of greenwashing rather than decrease it. “Where is the objective quantification or independent scrutiny? He said, “I will believe it when it is seen.” Kenny believes that AoVs should be used by firms to promote their capabilities and provide transparency. He said that the risk of firms using ‘woolly” ESG metrics to mislead investors is up to the gatekeepers, media and other professionals to “blow a spotlight on this behavior” and hold them accountable. He said that it would be brave for people to offer anything substandard on this issue, as ESG issues and greenwashing are at the centre of the discussion. “I understand that value assessments could become like those in the US which are effectively an Excel festival depicting table.
After table. “AoVs will be left on the ground if they are allowed to.” But, being optimistic, I hope the industry recognizes that there are many flaws in how we handle people’s money and that they need to be addressed.