I remember when investing responsibility was thought of as ‘nice-to-have’ – usually when markets were on the rise. A decade ago, investors thought there was a trade-off between doing the right thing and making decent returns.
Fast track to today and this perceived wisdom has been turned on its head. Once seen as niche, responsible investing is increasingly mainstream as these strategies can perform well and attract strong inflows.
The move to responsible investing is driven by more than FOMO (fear of missing out) – it is now a ‘must-do’ for asset managers as allocations shift towards these investment priorities. Even in these times of market stress, we have seen inflows into funds with a responsible focus increasing four-fold, according to The Investment Association. And it’s a trend which shows no sign of stopping.
This shift is arguably one of the most important changes within asset management in recent decades. This is good news for an industry whose primary purpose is to provide a good financial future for their clients. Yet, as with any significant shift in sentiment or focus, regulation and standardisation need time to catch up.
While regulation is on its way, the current absence of industry recognised consistency, leaves the way open for different interpretations, confusion and greenwashing – whether inadvertent or intentional – as firms scramble to join the band wagon.
In addition to the obvious changes to process, procedure and product – and their associated risks – the shift presents companies with some very practical challenges:
- How to ensure staff have the right skills, at the right levels within the now virtual office environment. We are seeing many senior appointments to lead the product evolution which will in turn lead to a need to educate the wider staff force via effective remote training techniques.
- How to communicate with clients across the investor spectrum to help educate and inform but in a way that is open, transparent and engaging. Understanding what really matters to investors will be critical to success.
- How to demonstrate that what you are doing is authentic and true. Without the core standardisations – such as data, evaluation, language and analysis – firms will need to explain the complexities in a way that is more accessible and less technical. They will need to showcase how companies that are managed in a sustainable manner can deliver better results and demonstrate where firms are on their responsible investing journey.
Firms with sustainable propositions will be in a good place to take advantage of the demand for responsible investments. However, larger players, new entrants or consolidation within the market will make this territory more competitive for both share of voice and margin going forward.
If nothing else this shift, accelerated by the pandemic, is driving the industry to reprioritise key values and what this means for business sustainability, flexibility and growth. This provides a unique opportunity for firms to make a positive step-change in how they differentiate themselves and communicate their proposition.
As cowboy wisdom advises “If you climb in the saddle, be ready for the ride”.
Those who embrace this opportunity will be in the driving seat.