Q: What is the biggest theme for sustainable investing in 2021?
A: Climate will be the focus of 2021. US President Joe Biden will support financial stimulus that goes into green technology and infrastructure. The United Nations Climate Change Conference in February will be the most significant climate event since the adoption of the Paris Agreement in 2015. Meanwhile, many companies are adopting the global standards developed recently by the Task Force on Climate-Related Financial Disclosures (TCFD). These will promote more informed investment decisions. They are among the many forces pushing climate up the agenda and bringing us to a tipping point.
Q: How will this tipping point affect your offerings and investment decisions?
A: It is accelerating our development to the extent that all new products will be green or sustainable. We have an existing socially responsible investing service for high-net-worth individuals with a focus on the UN Sustainable Development Goals and we have just launched two sustainable products: one multi-asset fund and one bond fund. On investment decisions, we are thinking about which companies will benefit from a continued shift in global policy towards green agendas. We hold an increasing number of green alternative assets, such as wind farms or solar farms. These often provide a secure long-term income that can make up for the lack of income available through other investments.
Q: How is coronavirus affecting sustainable investing?
A: The pandemic has brought to the forefront social and environmental issues that are shifting sentiment towards sustainable investing. For example, it has highlighted deep social inequalities, and that climate change and biodiversity loss can be linked to the introduction of new highly infectious communicable diseases. Sustainable investing supports companies that help solve these problems and will help society recover faster.
Q: How is research and data for sustainable investing evolving?
A: Tools are launching that bring sustainable investing data almost into real time, by using artificial intelligence and natural language processing. Sustainability data from companies has improved by reporting through frameworks such as the TCFD and the Global Reporting Initiative (GRI) Sustainability Disclosure Database. The European regulations on sustainability-related disclosures in financial services, coming into force in March, will strengthen this further. This regulation focuses on providing clients with greater transparency on their investments’ sustainability issues, letting them drive investment managers to become more sustainability aware. This effect will ripple throughout the industry.
Q: Do reporting standards need to improve further?
A: We need more cohesive standards for sustainability reporting. The GRI, CDP global disclosure system, Climate Disclosure Standards Board, International Integrated Reporting Council and Sustainability Accounting Standards Board have made a statement of intent to work together on their frameworks. The International Financial Reporting Standards Foundation is also consulting on a new Sustainability Standards Board, which former governor of the Bank of England Mark Carney has endorsed. These initiatives will help create more cohesion and clarity. Another area for improvement is that we are nowhere near the systematic provision of sustainable investment data yet; if you compare it to corporate financial data, you can see the gap.
Q: Why did Close Brothers Asset Management develop a proprietary process for ESG research?
A: We have a strong internal research team specialising in fundamental analysis. To build on this, we designed a bottom-up process that embeds environmental, social and governance (ESG) factors into our research and analysis. Our analysts and investment managers engage regularly with companies to gain further insight and encourage sustainable business practices. Our bespoke business enables us to offer portfolios that are highly tailored towards a client’s values, which is something many other managers cannot do. Our goal is to start measuring the impact associated with our investments in more specific detail. For example, we could then tell clients “this portfolio is geared towards reducing global warming to 1.5 degrees”.
Capital is at risk. Investments can go down as well as up.
This article was originally published as part of Raconteur’s Sustainable Investing report in The Sunday Times on February 14, 2021.