Expert: Phoebe Stone, Head of Sustainable Investing, LGT Facilitator: Roderic Rennison: Catalyst Partners Ltd
Headlines:
- Research is key. It is not appropriate to have an algorithm doing the research. For example, passives can often contain tobacco
- It is important to understand client attitudes and risk appetite
- Investment horizons and managing client expectations are interlinked
- Investment in Asia is likely to be a part of the solution
- Careful questioning, to ensure that there is clear client understanding, is required
Context:
A common client comment is along the lines of: “I want to be good, but I also want to make money.”
Firms need to decide if they have the expertise and resources to undertake the appropriate standard of research; most do not, so outsourcing may be the right solution, but the evaluation and selection process needs to be rigorous.
A distinction needs to be drawn between a client’s interest and commitment; carefully framed questions around risk tolerance should, when combined with risk questionnaires, enable the adviser to assess the level of commitment and therefore the extent to which they want their portfolio invested in ESG/impact funds and how “green” clients actually want to be.
There was a consensus that clients need to be made aware that ESG investing is at least a 10-year timespan and that there will be periods of underperformance, when compared to other funds.
China has invested more than one trillion dollars, compared to the USA’s half a trillion dollars, and so China is, despite the challenges, still a location to invest. Having local representation to undertake the research and company visits, was considered to be important.
Key takeaways:
- There is no perfect solution. There are going to be impact trade-offs
- Some areas will have to be compromised to find an achievable investment solution that is an appropriate middle ground for clients
- Having a checklist to use is likely to lead to better outcomes, such as the below example, provided by LGT:
- Company commitments
- Net zero
- UN PRI/Stewardship Code/TCFD
- Sustainable tools and selection process
- What/how
- Plans for evolution: need to run to stand still
- Team and dedicated resources
- Who
- Plans for growth
- Reporting and engagement
- Transparency
- Ability to use the material with clients
- Asking your curve ball questions
- Ask something challenging
- g., thinking about net zero in an investment context, impact trade off, integration of biodiversity data
