As stewards of our clients’ assets, asset managers have taken responsible investment approaches for many years – approaches that consider social, environmental, and governance (ESG) criteria in their investment analysis and decisions. The aim: to achieve better long-term returns for clients.

However, in the last decade specifically, sustainability has become more prominent around the world. Interest in responsible investment solutions that target both sustainability goals and long-term returns is growing.

We’re seeing three major themes in sustainability for asset management:

1. Diverse client objectives

Our fundamental role as asset managers is to help savers and investors achieve their investment goals – whether financial or non-financial. And, recently, policymakers have become more interested in how asset managers can help investors achieve their non-financial goals.

We see this in:

  • Governments looking to the private sector to play a bigger role in helping to achieve the UN Sustainable Development Goals
  • the FCA’s focus on non-financial objectives in the context of the FCA Market Study on Asset Management
  • the UK Department for Work and Pensions’ consultation on clarifying trustees’ investment duties. While not yet a requirement, the Government recommends pension scheme trustees prepare an optional policy on how investment strategies consider non-financial factors, such as ethics, social and environmental impact, and quality of life.

2. The numerous approaches to sustainability and responsible investment 

There’s no one-size-fits-all approach to responsible investment. It’s an evolving, growing, dynamic market with diverse approaches, investment strategies, and a range of investment products designed to meet different responsible investing goals. 

While different policy and regulatory initiatives focus on different aspects of the sustainability and responsible investment agenda, it’s important to the industry that the collective impact of different regulations is not to limit innovation or investor choice. Instead, regulation should help promote and develop all forms of responsible investment to meet the wide range of investment goals that savers and investors have. This includes being clear that sustainability and responsible investment goes beyond environmental concerns alone.

3. Articulating asset managers’ wider role and contribution

Senior policymakers and the public are increasingly aware that all investments have some impact on society and environment – negative or positive, intentional or incidental.

With this in mind, there’s growing debate around how asset managers can disclose how their investments measure up against sustainability indicators across their full range of investment strategies.

Asset managers are being encouraged to disclose this information more and more, and in some cases, it’s required. In fact, disclosing ‘adverse sustainability impacts’ is, in some cases, now mandatory through the European Union’s new Disclosure Regulation.

However, there are significant limitations to how this information is currently disclosed, with little consistency or comparability across different methodologies. We’ll need to work closely with governments and regulators to achieve useful and comparable disclosure methodologies against wider sustainability indicators or measurements.

 

The Investment Association’s industry-led initiatives 

At the IA, we’re working closely with our firms to promote all forms of responsible investment. Above all, we’re helping firms think about their wider role in society and the environment. 

At the start of 2018, we made sustainability and responsible investment one of the IA’s top priorities. Since then, our work has focused on the following

1. Developing industry positions on key public policy initiatives like the European Commission’s Action Plan on Sustainable Finance. (Click here to read more from the Commission.)

2. Supporting the development of standards and definitions to bring greater clarity and comparability to the different responsible investment approaches our firms carry out.

3. Improving how our firms communicate the ways in which they take sustainability matters into account.

4. Progressing social impact investing through the recommendations of the ‘Growing Social Impact Investment Report’. (Click here for the Report).

 

Member consultation on sustainability and responsible investment

At the start of 2019, we launched our member consultation on sustainability and responsible investment to help shape future policy and hear industry views on key areas of the debate including:

1. Industry-agreed definitions

2. Proposed label for financial products

3. A clearer view of asset managers’ use of disclosure frameworks related to sustainability.

Click here to find out more about the IA’s member consultation.

 

Industry work in a fast-paced policy and regulatory backdrop 

Our industry-led work happens in a quick-moving and multi-faceted policy and regulatory backdrop. Here’s a list of some of the most important initiatives for industry – which shows how many (and how varied) current initiatives are:

 

IA policy papers 

From the start of 2018, the sustainable finance agenda has been particularly full, with the IA submitting 10 different policy responses. 

To read our responses in full, please go here