COP26: What is the role of the adviser in ESG?

With the COP26 conference dominating national press this week, support for environmental principles from the financial advice community has been evident on social media, writes Kat Mitchell.

What is also clear is there is a lot of skepticism around the ESG products and data that is currently available to retail clients.

Last month the FCA told advisers that it expects them to scrutinize claims made by ESG fund managers, and to challenge them where appropriate.

My question is, with this essentially placing the role of a fund analyst onto the adviser, where does this leave smaller independent advice firms who are unlikely to have this kind of resource in house?

At a time when advisers are already facing a heavy regulatory burden along with high levies is this really appropriate?

Personally, I would rather see the regulator pushing for a set of standardized international sustainable investing matrixes by which advisers can more easily compare the real environmental and social credentials for funds with the companies they are invested in analysed all the way through their supply chains.

The COP26 conference this week has seen higher engagement from financial services companies than any previous climate conference.

Asset managers and pension funds have made commitments on deforestation and committed to funding climate investments.

The FCA should capitalize on this engagement, and similar engagement levels around the world, to work with their counterparts in the UK and overseas to seize the opportunity to standardize sustainability reporting for retail funds to clamp down on greenwashing. They should be placing the burden on the so-called ESG fund managers rather than trying to pass the buck down the food chain to advisers.

UPDATE

It seems the FCA has the same topic as I do in mind today.

The FCA has just released a discussion paper Sustainability Disclosure Requirements and investment labels. One key area the paper touches on is developing consistent trusted standards for ESG labelling for all funds.

FCA CEO Nikhil Rathi said: “’It is vital that we innovate to support industry’s shift to a more sustainable future. That is why the FCA has been leading from the front. Developing consistent, trusted standards are a vital part of that, giving investors the confidence to put their money where it can deliver the most sustainable outcome.

“The strategy we have published today puts these standards front and centre, supported by supervision and enforcement where firms fail to meet them.”

However, the paper also suggests that the onus will be on financial advisers to take sustainability into account when making investment recommendations.

Any rule changes are set to appear from Spring 2022, according to the regulator.

The discussion paper and online response form are available online on the regulator’s website.