Advisers have a vital role to play in helping their clients to understand environmental, social and governance (ESG), according to Zenith Investment Partners.
The field of responsible investing (RI) was still in its early stages in Australia, compared to Europe, which meant it not always understood by clients. Performance would also be scrutinised by investors in this turbulent market environment as to whether these types of funds would perform as well as non-RI ones.
RI was also more nuanced than advisers or clients may believe and focused on a wider range of issues than negative screening.
Dugald Higgins, head of responsible investment and sustainability, said: “There are many roads to responsible investing (RI). But what is ‘good’ or ‘green’ in RI is very much in the eye of the beholder. The challenge therefore is how do advisers identify a client’s RI preferences and how can they action them in a systematic way?
“What’s good looks different based on different asset classes and investment approaches. Investors need to understand how far they are prepared to go to pursue RI preferences and what outcomes they are prepared to accept.
Regulation was also increasing in the space globally, including from the Australian Securities and Investments Commission (ASIC) which meant it would be more difficult to advisers to ignore it in the future.
“Global regulations around RI are increasing and converging, and there is recognition amongst regulators that cross border harmonisation and inter-operability is important.
“There has been a major focus on the development of global sustainability disclosure standards, fund labelling and mitigating greenwashing – and this focus will continue to gather pace.
“What’s more, the continued development of standards in Europe, the UK and the US may foreshadow what the future ultimately looks like in other countries like Australia. For example, market participants in Europe are already required to disclose how they account for sustainability risks in decisions and products, with funds required to be classified based on the degree to which ESG and sustainability is a consideration.”
