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’.
WHEB’s listed equity team proudly displays the EUROSIF SRI Transparency logo on its website and presentations, having taken advantage of the free registration for UKSIF members to the scheme. I have frequently told clients how pleased we are to be one of the first to commit to the standards and practices required of the code, and I am surprised that more of UKSIF’s membership have not done the same.
What the Investors Chronicle misses however, is that this doesn’t represent a challenge to just green and ethical investment funds, but should be seen as an issue on which the entire investment funds industry is failing to respond to adequately. Transparency, accountability, fund governance and the alignment of investment managers with their clients presents a set of challenges to the industry as a whole. The IMA website reports 2,468 UK domiciled funds in June 2013, hence my 99.6% headline above.
At WHEB, we have looked to introduce measures that improve our alignment with our clients’ interests, such as co-investment in our funds and transparent discipline around fund capacity. We’ve improved the governance of our fund in favour of our clients through the use of an independent Investment Advisory Committee which challenges us on our adherence to our mandate. Transparency gives an edge to all of this. For example, by publishing the minutes of our Advisory Committee or the full list of holdings in our fund it gives clients better tools to see that we employ the ‘Ronseal principle’ (ie that the fund ‘does what it says on the tin’). These measures are not specific to ethical, or sustainable and responsible investment funds, and I would like to see them applied broadly across the funds industry. Too often clients feel that a fund manager has told them they will act and invest in a certain way, and the reality has been quite different. The measures described above go some way to guarding against such ‘mandate drift.’
EUROSIF’s transparency code should be seen as a starting point and a set of standards to which all should aspire. It is to be expected that the sustainable and responsible investment funds industry should be at the vanguard of tackling the problem, and I would encourage all UKSIF members to sign up to the EUROSIF guidelines. But the real problem that the Investors Chronicle should be highlighting is the opaqueness of the funds industry at large, rather than looking for any excuse to try to undermine those that are making an effort to solve these problems.
