Communicating with customers to deliver a sustainable future
As investment managers started considering the shape of new retail labels for sustainable investment funds, one of our first steps was to talk to our customers, and then to their advisers. We wanted to know how they made sense of what is clearly a mission critical agenda for all of us. There is no doubting how central the issue of sustainability has now become, especially tackling climate change. But boiling a complex, diverse and ever-changing process down to a small number of helpful signposts for customers is not without its own challenges.
One thing above all stood out from our research. Investors in all of our retail customer segments, and not just young people, are thinking about sustainability, and they see a role for the investment management industry in helping to achieve a better world. This is, in part, reflected in marked increases in the level of retail inflows to responsible and sustainable funds in recent years.
Our customers also expect us to speak the same language as them, and readers may not be surprised to hear that the individual investors we spoke to struggled to understand what we meant by ESG. In this context, they are enthusiastic about the idea of simple labels that would help them make good choices and have confidence in the investment process.
The Investment Association and the industry are already on that journey and have taken steps to put in place an industry-wide framework to define responsible investment approaches, as well as guidance on how to communicate with investors. But we recognise we can do more to explain and communicate what we are trying to achieve. We also recognise the need to be able to provide evidence of the extent to which we can have a positive effect on the economy, and the importance of avoiding the impression of ‘greenwashing’ in a world that is often sceptical about the claims of financial services companies.
The FCA’s label proposals provide an important starting point. In particular, recognising the central role of transition – the journey to improvement – resonates strongly with our customer research. People understand that sustainability is not a ‘one and done’ exercise and our focus groups showed a lot of scepticism that the journey is ever complete. In the language of the FCA labels, perhaps all companies are always improving.
And that leads us to a degree of caution about being too prescriptive and narrow. As things stand, we are concerned that the way in which we invest sustainably just does not fall neatly into three categories like Focus, Improver and Impact. That does not mean that we are reluctant to change. Far from it. But there is a risk that if the gap between a new framework and the investment universe is too wide, we fail our customers with a market that will no longer serve their needs or those of the wider economy.
We want to see a labelling system which will incorporate the current fund market, while also looking to the future of how sustainable and responsible investment funds will develop, so that investors can fully understand and navigate this segment of the market – now and in the future. This information must also be presented to investors using clear and comparable language, and in a format which is easily accessible. Achieving this, will give investors confidence in their investment decisions and empower them to seek a more sustainable future.
To view our press statement on our response to the FCA's consultation on SDR and investment labels: click here.
