Time to take responsibility for our world

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Dec 03, 2019
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With weather patterns creating havoc across the globe and our oceans full of plastic, many people are waking up to the need to live a more sustainable lifestyle. Deciding what to buy on the weekly shop, or what car to drive are ways people can make a difference and another is through their investment choices.

Helping people to think about investing responsibly will soon be something UK financial advisers will have to build into their client discussions, thanks to the Financial Conduct Authority’s (FCA) requirement (from January 2020) to ask clients about their approach to responsible investing.

The whole area of socially conscious investing is a complex one, with the shade of ‘green’ required by investors varying greatly from person to person.

Hopefully help is at hand with the introduction by the Investment Association (IA) of new guidelines that aim to help remove ambiguity and end confusion.

The framework outlines industry-wide definitions for commonly-used terms such as Environmental Social and Governance (ESG) integration, stewardship, impact investing, exclusions and sustainability focus.

They are designed to help advisers have the right sort of discussions with clients, with the aim of being better placed to help create portfolios that meet the responsible investment needs of individual clients.

Back in 2016, PortfolioMetrix recognised the need for risk-controlled portfolios that fall under the heading of ‘responsible investing’ which culminated in the launch of our Ethical Emphasis portfolios at the beginning of 2017. And last week we were pleased to be shortlisted for an Investment Week Sustainable Investment ‘Innovation (Portfolios)’ award.

The funds we select focus on positive screening and engagement: using an active research function to determine the social and environmental effects of potential investments, and working with current investments to improve their sustainability. As well as the active route, a passive option is available, although passive ‘ethical’ investment vehicles tend to be limited to negative screening and so are ‘lighter green’ than their actively managed counterparts.

How do we define ‘responsible’ investment portfolios? This is our current thinking:

  • Focus on achieving a positive social and environmental impact without sacrificing clients’ financial objectives.
  • Through their constituent funds, seek to invest in securities which strongly benefit society.
  • Through their constituent funds, seek to improve the behaviour of the companies that are featured in the portfolios.
  • Consist of funds that explicitly seek to avoid investing in companies whose business models are misaligned with sustainability principles.

Individual investors have different concepts about what exactly is positive or negative from a societal point of view, so it’s almost impossible to design a cost effective and diversified multi-asset approach that will suit every single socially conscious investor or exclude every security that could be considered problematic.

However, technology can help, giving some flexibility for portfolios to be customised, enabling focus on companies widely considered to have positive social attributes and to screen out those widely considered troubling, with the expectation that this will be appropriate for the majority of socially conscious investors.

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Go to the profile of PortfolioMetrix

PortfolioMetrix

PortfolioMetrix are a multi-award winning, innovative investment manager that provides independent financial advisers with an alternative way to access discretionary investment management for their clients. Our proposition comes at a competitive price and doesn’t compromise the adviser/client relationship. The London winner of the Citywire Wealth Manager Regional Stars award for two consecutive years, voted the WM Small Business of the year, in association with ARC 2018 and, in 2019, have received the accolade of PA Discretionary Manager of the Year. Our proposition offers the convenience of online model portfolios yet delivers customised portfolios, tailored to individual client requirements. Investment performance has demonstrated consistent and reliable risk and return separation of portfolios that doesn’t undermine the financial planning process. This is achieved through our academically-robust, risk-based investment approach. WealthExplorer™ is integral to the PortfolioMetrix customised service. A proprietary owned and designed software system, WealthExplorer™, is purpose built to equip advisers with a broad range of tools designed to deliver unique client insights that add value to the adviser/client relationship and ultimately delivers better client outcomes, when utilised by financial advisers.

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