The Investors Chronicle had a good go this week at trying to rain on the National Ethical Investment Week’s parade. “UK ethical funds: nine in 10 failing European standards” shouted their headline, preceding an article which highlighted that only three fund management groups or nine UK funds comply with the European Social Investment Forum’s (EUROSIF) transparency code. Compliance with this code is compulsory in France and Belgium for funds to be marketed as ‘ethical’.
Collecting and analysing environmental, social and governance (“ESG”) data is always a big challenge for sustainable investors. Although sustainability reporting is an increasingly popular practice, it is not sufficient to rely on a few companies voluntarily disclosing their ESG data. Long-term investors require consistent and comparable ESG data to make their investment decisions. Based on our experience engaging with companies, a lot of companies still have the mindset of just meeting the minimum regulatory requirement. Hence, more policies and regulations are needed to ensure proper ESG disclosure and data quality. This is where stock exchanges and relevant regulators should step in.
National Ethical Investment Week has got off to a great start and attracted a decent amount of publicity. As ever, there is some level of confusion about exactly what makes a fund an ethical fund. There is a plethora of terminology here around ethical, socially responsible, sustainable, screened, or best-in-class. Investors Chronicle provocatively pointed out that nine out of 10 funds marketed as ethical or socially responsible in the UK would be banned from doing so if they were sold in Belgium or France because they do not comply with Eurosif transparency guidelines, as if the defining criteria of ethical funds is adhering to such guidelines.
This morning we hosted a group of eight charitable foundations including some of the UK’s largest, to discuss what ‘climate conscious’ investing might look like for these groups.
As National Ethical Investment Week (NEIW) kicks off, it is encouraging to see a decent amount of coverage in the press. Not just in terms of column inches, but with plenty of intelligent insight about what the press still largely refers to as ‘ethical’ investment.