Lonsec will launch a new environmental, social, and governance (ESG) rating to help financial advisers select sustainable products that are aligned with their clients’ values.
Partnering with data provider, Sustainable Platform, the rating will analyse the underlying products and services provided by the companies in their portfolio and their compatibility with the United Nation’s 17 Sustainable Development Goals (SDGs).
Lonsec chief executive, Charlie Haynes, said: “There’s a growing desire among advice clients for investment solutions that don’t just take ESG factors into account, but put their money where their mouth is and actively consider the broader social and environmental impacts of the holdings in their portfolios.
“Part of the challenge is giving advisers and their clients access to the right information. At the moment there’s a real lack of transparency that makes it difficult for investors to understand exactly what they’re investing in.
“Our iRate platform is more than just research. It gives users the tools to create tailored portfolios based on a range of qualitative criteria that now includes the proper delineation between responsible investment managers and sustainable investments.”
Lonsec noted that traditional ESG incorporated these factors into the investment process, but it doesn’t necessarily exclude unsustainable activities, or favour sustainable ones. Most approaches allowed the investment into ‘unsustainable’ companies if the ‘price was right’ or corporate engagement was deemed to be positive and this did not necessarily align with investor expectation.
Lonsec’s head of sustainable investment research, Tony Adams, said: “The risk of ESG investing is that it can result in a ‘greenwashing’ of portfolios. Investors might see an ESG label and assume that it’s only investing in sustainable activities, but this is almost certainly not the case.
“You have to dig deeper to understand how the investment manager defines ESG, how they use it in their investment process, and how it impacts the final portfolio outcomes.”