Lisa Hardman takes a hands-on approach to meeting clients’ ethical preferences. She often talks to fund managers about areas they are invested in, particularly for clients with more unusual preferences.
The director of Norwich-based advice firm Investing Ethically is confident asset managers can get the necessary answers, but it often takes some digging. Moreover, Hardman double-checks much of the information herself, for example, to find out whether a supposedly fossil fuel-free fund is actually fossil-free.
‘For a vegan client, a fund manager pinpointed the percentage of turnover of individual company holdings derived from meat production,’ said Hardman. ‘There’s a high level of detail available from asset managers, but not enough people ask for it.’
New Model Adviser® spoke to asset managers about their experience of working with financial advisers. We asked for tips on how advisers can get the most from investment houses regarding ethical preferences.
Citywire + rated Joanna Crompton, co-manager of several JP Morgan European equity funds, says it is important to know the difference between ethical and sustainable investing. ‘Ethical investing is quite values-based, while sustainable concerns environmental, social and governance [ESG] issues,’ she said. ‘When talking to people, you must make clear what ESG is and what you mean by it.’
Crompton said, because of the nature of her firm’s relationship with companies it is working with on ESG, it cannot always give full details to advisers. ‘It is often unhelpful to have all the details in the public domain while you’re still trying to have a constructive dialogue with the company. We will discuss themes we are engaging on but we tend not to use the company name, for example,’ she said.
Ross McSkimming, global equities investment director at Aberdeen Standard, outlined an alternative. ‘More recently, the industry has been looking at impact investing. We have a global equity fund that looks at impactful solutions, where stocks link directly to the agenda of the United Nations’ 2030 Sustainable Development Goals [SDGs]. Intermediaries must be aware of the issues, the SDGs and the various available solutions,’ he said.
In cases where a client has value preferences they want reflected in their investments, Crompton said advisers need to work with the fund manager to ensure consensus on that definition. What, for example, does it mean for a fund to have ‘exposure’ to something?
‘Sometimes definitions are difficult if you want to work out a fund’s exposure to, say, nuclear. Would you include the people who provide security for the reactors, for example? Ideally we use a third-party provider and see who they say is exposed to something like nuclear or we take the client’s definition,’ Crompton said. She added JP Morgan is ensuring ethical and sustainable expertise is integrated across all teams.
Settle differences aside
A tip from John David, head of Rathbone Greenbank Investments, is to detach your own preferences from those of your client before helping them find the right investments. ‘Your views will probably differ in some cases from your clients. But your role is to help them achieve their aims, including any ethical, social and environmental preferences,’ he said.
David thinks investor interest in ethical, sustainable and impact investing is set to increase. He pointed out interest is ‘strongest among millennials. Given this generation is reaching the point where they have enough money to invest, impact and positive investment will become increasingly in demand,’ he said.
The good news for advisers is there are innumerable resources to help them stay one step ahead of even the most engaged ethical, sustainable or impact investor. And investment houses themselves are in a better position than ever to count among those resources.