Anna Mercer, head of 3D research, Square Mile Investment Consulting and Research
Reflecting on what has been a tumultuous year for ESG and markets in general, what has been your biggest challenge and how have you overcome it?
The field of responsible investment continues to evolve and with it the regulatory oversight governing it to ensure that its promise of delivering tangible benefits to society and the environment is met. To help advisers help their clients make informed investment decisions we will continue to analyse incoming regulation, reassess definitions describing this approach to investment and to express our interpretations in a transparent and accessible way.
This is a challenge faced by all areas of asset management, from fund groups to industry bodies and is one which we embrace as a fundamental duty. The latest SDR proposals announced in late October shows that this challenge will continue into 2023, and we will seek to maintain our approach of constructive engagement with the FCA, the industry and our clients with the aim of introducing clarity where there might be confusion.
Please provide one prediction for the ESG investment world for 2023.
Responsible investment funds have had a difficult run in 2022 in performance terms. This has led those with a more sceptical view towards this approach to investment to question the durability of their popularity. However, we firmly believe that demand for responsible investment funds will persist. The short-term headwinds that have negatively impacted their performance this year, however, do not fundamentally impede the long-term secular trends that should hopefully see capital flows favour businesses that are part of the transition towards a more sustainable future.
Financial performance is an important consideration for investors in responsible investment funds, but of equal importance is the knowledge that their money is being put to work in a way that benefits the environment and/or society. The loose and sometimes confusing terminology applied to responsible investment by funds groups and the broader industry has been a further critique levied by naysayers who are quick to point to instances of greenwashing or misleading promises.
SDR, with its proposed labelling regime, aims to address this by splitting the universe of responsible investment funds into three categories: ‘sustainable focus’, ‘sustainable improvers’ and ‘sustainable impact’. Questions remain over the precise parameters of these categorisations and the FCA’s consultation remains open. However, the move towards greater transparency and the regulator’s focus on the need to be clear, fair and not misleading, which will continue to play out in 2023. This should hopefully enhance investors’ ability to see that their savings are being employed as a force for good and that their chosen funds invest in the way they have defined in their objectives.