Changes in SRI – comings and goings in a dynamic market

It is with great sadness that I read – and re-read – the news from Aviva Investors that they are to make 160 of their London staff redundant and that with this comes a significantly reduced commitment to SRI.

Aviva, like Henderson’s who also made a similar announcement recently, have both had a hugely positive impact on sustainable and responsible investment (SRI) – and both are to be commended for their work there.

Yet both are substantial businesses, doubtless having to make difficult decisions in difficult times. Anyone who has worked for a big company will understand how top level strategic decisions can impact departments that are relatively small – even when they have been going from strength to strength.

But like any market change is a constant and necessary feature of SRI. So while Henderson’s and Aviva may be heading for the door we are seeing new entrants such as Vanguard bursting in. And there’s the whole new hugely exciting area of Impact Investment which is starting to muscle up – perhaps as the natural successor to the early ethical investment ethos? Like the Henderson and Aviva SRI funds ten years ago both are potentially game changing.

Where next for SRI advisers?

So, firmly grabbing those boot straps, where does this take us? A few thoughts…

Horses for courses. Whilst some of the ‘bigger boys’ may not favour retail themed funds at present they remain committed to integration – where they engage with investee companies on major ESG issues. And let’s face it – they are really well placed to do this successfully. In my view all fund managers should be responsible investors – and should encourage positive change – but the bigger you are the easier it is to be heard by the companies you invest in. In the main, boutique fund managers are probably better advised – in these cash strapped times – to develop specialisms, join industry initiatives (such as the PRI) … and maybe to nudge the big boys when they miss something. So let’s hope that once the dust settles these firms do what they set out to do as effectively as possible – and to good effect.

Get engaged. Advisers should get talking about engagement and the importance of integrating ESG (environmental, social and governance) issues across all investments – the ‘big picture’ stuff. The reasons are simple; it is the future (because it is what institutional investors want), it’s not going to go away (because it is cost effective) and it can be hugely positive (as it is about effecting change). Granted – it can be difficult for IFAs as fund managers don’t always publicise anything like enough information about what they do – but people buy products from companies because they have ‘decent’ brands all the time. Most don’t ask for details about individual products. So talk about fund management companies – not just their funds. This idea will not suit everyone of course – but for some investors the silver lining of ‘better integration of ESG issues right across the board’ could be more relevant than specific fund strategies. And if you need more information about what fund managers do ask them!

Platform 9 – & ¾? A big winner in these choppy times is likely to continue to be platforms – and wraps. This is probably more relevant in the slightly ‘other-worldly’ field of SRI than other investments where there is perhaps more choice. For investors who use platforms already fund closures may not be a big deal. For others it could be costly to find an appropriate alternative. For this – and other reasons – I would urge advisers to take every opportunity to help green and ethical funds to get onto as many platforms as possible by asking for them. Feedback from at least some platform providers indicates that advisers aren’t really asking for more SRI funds too often … and as we all know if you don’t ask you won’t get.

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Adviser note: The new Fund EcoMarket tool is intended to help you identify funds with different SRI Styles quickly and easily – have a look and let me know what you think.

 

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