Certified Content. A one-hour watch.
Responsible investing, or ESG to some, is clearly top of the agenda for portfolio construction today.As we’ve discussed across Octo, asset managers are embracing this topic with much enthusiasm, though with every new ESG fund launch comes more cynicism and, ultimately, some accusations of greenwashing.
We decided to tackle this topic head on with our latest Hot Topic virtual lunch, attended by representatives from across the board from fund pickers, a regulatory expert, and a fund manager himself.
Our host, Georgina Mitchell, MSCI, took the bull by the horns asking guests if there really is the risk of an ESG bubble, with too many investors piling into the same stocks, whether that’s renewables, electric transport, or indeed in many cases tech.
“There has been a lot of talk about how ESG funds have outperformed non-ESG funds in the past six or seven months and that is inevitably down to the sectors they are in,” said Mikkel Bates, regulatory manager at FE Fundinfo.
“I think people are getting wise to that now and it’s being seen as another example of greenwashing to start promoting an ESG fund based on recent performance during Covid. The practice has been rumbled”.
Mikkel expects further rotation to other sectors that are becoming more sustainable, and indeed managers and their funds that are adopting more sustainable practices.
He added: “If, say, tech does have a correction then you will see some sustainable funds that won’t be as impacted as others because they won’t be relying on tech now. That is probably when the chicken’s come home to roost if there is a tech correction to see what it does to the ESG sector”.
From a fund manager perspective, Ben Constable-Maxwell, head of sustainable & impact investing at M&G, stressed that valuation analysis should be just as much a central part of an ESG or impact fund as with any other.
“You can’t say ‘we’re just going to invest in this nice green theme or good ESG companies’; that would be a very short-lived approach and I think it would bring the whole of this ESG, sustainability and impact movement into massive disrepute and it would fail,” he remarked.
“Any ESG manager worth their salt needs to have a very thorough, structured investment process to identify good businesses, and ultimately good investments with valuation analysis at its core”.
Ben singled out some stocks in areas such as clean tech and electric vehicles, where he believes valuations have been “disrupted or dislocated from the reality of the business model and its likely long-term returns”.
He concluded: “I would say it is not a bubble, and you can find great businesses at still attractive valuations and when and if certain areas of the market do potentially hit bubble territory it’s the job of the fund managers to make sure they understand the businesses that are overvalued.”
So, what can professional fund pickers do to ensure the managers they choose are not simply greenwashing, with strategies based more upon marketing than actual substance?
“The first question is to really understand what that ethical or ESG fund is doing, because there are lots of funds out there all doing something slightly different,” said Paris Jordan, head of consulting at Murano, and founder of ethical investor network Virtuvest.
“What does the client want? Do they want exclusionary portfolios? Do they want a positive impact? Or do they want to make a difference in terms of engagement?
“Also, I’d mention what I always call my litmus test – if you remove that ethical or ESG process that the manager has adopted within their fund, how does it change the outcome? If it doesn’t change the outcome if they remove their screen or their ESG risk management, then you know they are probably greenwashing.
“If you do remove it and the portfolio changes quite a bit, with say some oil majors in there or if certain sectors are now included or not included, that’s when you can tell they are doing something and they are serious about it.”
You can watch the full event below, covering the whole range of discussions around ESG and greenwashing.
Octo Members is the very first app-based private community for UK financial services professionals, where advisers, fund managers, wealth managers and professional consultants can come together to share knowledge and best practices.
CPD is a key element offered to our members who asked us to deliver actionable, contextual accredited content across all of our multimedia publishing.
In response to this we’ve created CPD Streams, carefully curated programmes of CPD episodes to address your learning needs.
Featuring hundreds of hours of quality CPD contained within constantly refreshed articles, podcasts, videos and supporting collateral; all designed to help you learn in the way you want to.
Our new programmes include:
…with more coming! So you’ll notice more and more content being accredited over the coming days and weeks.
We’re really excited about this enhancement to our member benefits, as we commit to ensuring Octo is your favourite resource to help you stay informed, meet your regulatory requirements, develop your professional capabilities and connect with the profession all via the very best engaging and insightful content.
The process to record your CPD couldn’t be simpler. Just watch or read your chosen piece of content, click ‘claim your CPD’ and your earned minutes will be logged via CPD Hub.
Introducing CPD Hub: The CPD platform for all your learning needs
CPD Hub is a free online solution created specifically to make it easier for financial professionals to earn, collect and record their annual CPD points. Whether you are an independent financial adviser or are responsible for managing your team’s CPD training, CPD Hub is here to help.
A next-generation learning ecosystem
CPD Hub make sure every learning opportunity counts; you can upload certificates earned elsewhere (i.e. events and seminars). So it’s easier and simpler than ever before to keep a record of all your CPD learning under one platform.
With CPD Hub its easy to keep your learning on track and the reporting tools allow you to demonstrate and share your progress with your accreditation body or employer.
Isn’t it time you streamlined your CPD learning? Find out more and sign up for free at www.cpdhub.co
Don’t forget, all 35 hours of your structured CPD including your 15 hours of IDD can be gained from digital resources, so what are you waiting for? Check out CPD Streams and start logging your CPD today!
There are numerous issues facing the industry and by sharing ideas (not business sensitive) we can promote best practice and improve the standing of our industry and profession.Andrew Herberts
Distribution is changing. Move with the times or be left behind!Simon Weldon, Adviser
Sharing knowledge, best practice and ideas with those who know the industry and what they’re talking aboutMikkel Bates
UK financial services professionals and those interacting in a professional capacity with financial services are invited to request to join this private community