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The Attenborough effect: Sustainability going mainstream

Whale made of bottles symbolising sustainability

With 2018’s Good Money Week drawing to a close, we take a look at how the last year has seen attitudes towards sustainability move into the mainstream consciousness. Now more than ever, Advisers need good answers when the subject of sustainable investment is raised. Not only that, but assurance that regulators are taking the issue seriously.

If you’re less familiar with sustainable and ethical investing, you’ll enjoy the Good Money Week website which sets out to inform individuals who want to make money and also want to make a difference. The evidence speaks for itself. Companies which think intelligently about how they impact the environment and other people, win out, perhaps only because they pay that little bit more attention to detail.

The Attenborough effect

The inevitable logic that sustainability is a top priority has been brought home to all of us in TV programmes such as David Attenborough’s Blue Planet and Drowning in Plastic. The consumer and political response across Europe has been substantial. Investigations are now underway into how capital can be directed towards meeting our agreed sustainability objectives and how capital is influenced by financial advice.

This research has been led by the HLEG (High Level Expert Group on Sustainable Finance) as part of ESMA’s consultation on MiFID II suitability requirements. It has focused on the consideration of clients’ environmental, social and ethical objectives in reaching suitability assessments, which is at the heart of what advisers do.

Consumer surveys across Europe demonstrate that 70-80% of retail investors view environmental, social and ethical objectives as critical to their investment decisions. However, analysis of suitability assessment questionnaires shows these preferences are often omitted from KYC records and that there is a miss-alignment between advisers and clients perception of the importance of the topic.  The implication is that clients holding these preferences for sustainable investing, which is the majority, may not be receiving suitable advice.

Source: High Level Expert Group on Sustainable Finance response to Consultation on Guidelines on certain aspects of the MiFID II suitability requirementsLink

A wider shift, at home

European regulators are not alone in attempting to ensure people’s real views are being taken into consideration. From a UK point of view, mindful that our relations with Europe will change, it is vital not to assume that after Brexit sustainability will drop off the agenda. The evidence for this is widespread.

  • The Department for Digital, Culture, Media and Sport (DCMS), backed by the UK Treasury, has launched a major review into social investment.
  • The Department for Work and Pensions (DWP) has initiated a review into where pension schemes invest to sharpen focus on trustee responsibilities.
  • The Financial Stability Board (FSB) has initiated a Task Force on Climate Related Disclosure chaired by the Governor of the Bank of England.
  • The Institute and Faculty of Actuaries (IFoA) is warning its members to take climate risk into account.
  • The Law Commission has initiated work on a review of pensions and social investment.

Common Misconceptions

Some evidence suggests that advisers believe retail investors are not willing to accept the perceived trade-offs, in terms of performance, risk or fees necessary to achieve better social and environmental outcomes. However, a growing body of evidence shows that these are unsubstantiated assumptions. A significant number of fund providers have even indicated that combining an ESG filter within their research process increases the likelihood of outperformance and leads to a lower exposure to longer-term risk factors.

We make things easy

We’ve been pioneering simpler routes to sustainable and ethical investing at Parmenion for over six years through our uniquely flexible range of ethical portfolios. Their track record is exemplary and compares very favourably with returns on our core solutions and bear no additional costs for the extra research involved. For added independence, these portfolios’ fund selections are monitored by a specialist Ethical Oversight Committee comprising external experts. We have a developed a specially tailored questionnaire advisers can deploy alongside their standard risk profiling system to test which of the four solutions fit best to an individual’s preferences. Full details can be found on page 31 of our Quarterly Investment Review here.

With over £250m invested in Parmenion’s Ethical portfolios, and holding Moneyfacts 2018 ‘Best Ethical DFM’ award, we have found that recommending these solutions has created a stronger rapport between adviser and client. This leads to greater loyalty and referral opportunities from like minded investors keen to ensure that their wealth is invested with a purpose.

Get in touch

If you would like to get in touch with us to chat about our ethical solutions, or ethical investing in general, then please contact your relationship manager, contact client services on 0117 204 7600 or email