There are plenty of fund managers who claim environmental, social and governance (ESG) credentials, but how many of them are the real deal?
As investors become more interested in sustainable and ESG investing, fund managers are responding with an ever-growing range of investment products.
But the challenge for advisers is in distilling the true-to-label ESG players from those which only tick some of the boxes. Unfortunately, there are information asymmetries and knowledge barriers that can get in the way.
There have always been ‘pretenders’ in the mix when it comes to ESG managers, but part of the issue is that mum and dad investors view ESG very differently to professional fund managers. Confusion partly arises due to the different approaches to ESG, and this is where a gap in understanding arises.
Often, when institutional fund managers discuss ESG, they are looking at it through an investment prism: i.e. how ESG risks affect the value of a particular company. However, when regular investors consider ESG, they are primarily concerned about the ESG risks as they pertain to the planet and their community.
The bottom line is that institutional fund managers and regular retail investors may be approaching ESG from two different angles. Part of the education process for advisers is to work through this discrepancy and ensure that what their clients are investing in genuinely meets their expectations.
In order to do this, advisers need to understand the underlying investments of individual investment products and be in a position to make assessments and comparisons based on objective criteria. This is why Lonsec has been working with advisers to develop a new suite of research that is designed to give people the ability to identify investments that align with their values.
