"This will have implications on both asset allocation decisions (for example, building climate-aware capital market assumptions) and security selection criteria (for example, investing in assets whereby an intentional and measurable net positive impact is being generated).”
Iain Barnes, head of portfolio management at Netwealth says: “The regulatory emphasis on better understanding client views on ethical suitability is an exciting prospect. As ever, the devil will be in the detail of the UK regulation when it arrives and how it is interpreted.
"As part of applying ESG screening, we are considering an approach that will amplify allocations in issuers or assets with high ESG ratings relative to their peers and reduce exposure to those that score poorly. There has been an explosion in investable funds offering different flavours of sustainability in recent years, so this task is becoming easier to fulfil on one hand but more demanding in terms of ensuring that due diligence is at the necessary level to get the right components into portfolios.”
Bertie Dannatt, investment director at Ruffer, says all of the investments made by the company are selected using both an assessment of financial risk, and of ESG risk, and he believes it is “proper” that the regulator is ensuring greater clarity in the conversations around the topic.
Ursula Marchioni, Head of BlackRock Portfolio Analysis and Solutions, EMEA at BlackRock says: “To date, many investors have focused on the implementation of sustainable practices at the product level.
"However, the focus is starting to shift whereby sustainability is incorporated at all stages of the portfolio construction process- from specified sustainable portfolio objectives, designing a strategic asset allocation (SAA) to help achieve these targets, and, finally, implementing this with products.”
Minesh Patel, an adviser at EA Financial in London says he uses a fact find questionnaire from Fund Eco Market, as the basis for the conversation he has with clients as a way to establish client preference and criteria. He then divides those clients who wish to have ESG into five buckets: Ethical, SRI, Thematic, Impact, Sustainable, and ESG. He says most clients have some interest in ESG but few have a “definitive” view on what they want their exposure to be.
David Thorpe is special projects editor of FTAdviser
