RI's slippery slope to common ground
|
|
Financial planners seeking to recommend ethical or sustainable investments to clients would benefit from the provision of a commonly-agreed set of definitions describing the funds, according to the findings of a Money Management roundtable.
The roundtable, specifically focused on developments in the ethical and sustainable investment arenas, revealed the lack of common descriptors was serving to confuse investors and, in some cases, confuse financial planners.
The situation was highlighted by the president of the Responsible Investment Association of Australia (RIAA), Duncan Paterson, who said the absence of commonly agreed definitions made it difficult for
planners to communicate with their clients.
Paterson said that when people first looked at responsible investment “they immediately come out and insist that someone provide them with a single answer as to what is a company that should be considered ‘sustainable’ or what is a company which should be considered ‘ethical’”.
“That sort of standard of answer is not asked of other aspects of the finance sector,” he said.
“So what we’re trying to do is encourage people to look into the methodologies, to understand what the implications are of different types of calls on sustainability for companies and being able to be transparent about that,” Paterson said.
He said planners could then communicate more clearly with their clients.
Perpetual’s Pablo Berrutti said he believed there was a need to define the types of methodologies that were used more tightly so that they could be more easily explained to retail investors.
“And [the methodology] doesn’t need to focus on the values or the sustainability, but simply from a methodology point of view, does the fund exclude companies because of their practices, yes or no?” he said.
“That’s a very simple and easy way to start telling funds apart,” Berrutti said.
Queensland University academic Darren Lee said that better common definitions were needed in circumstances where there was often too much confusion about what was ‘ethical’ and what was ‘sustainable’.
“If you educate in the beginning and make [the definitions] available as to what these products are, and what the implications are of these products, I see no reason why they can’t be effectively communicated,” he said.
Paterson said that while the RIAA was looking at addressing the problem, finding a set of common definitions was not as easy as it sounded in circumstances where the fund managers themselves often disagreed on their approaches.
He said that, in many respects, it depended on the audience.
A special lift-out in this week's edition of Money Management takes an in-depth look at the issues confronting the responsible investment sector.
AUTHOR
Mike Taylor
Recommended for you
Insignia Financial has reached a major milestone in completing the separation of MLC Wealth from NAB, having acquired the firm back in 2021.
There could be changes ahead for how ASIC requires licensees to handle conflicts of interest as the corporate regulator announces it will be meeting key stakeholders next year to update guidance.
Proper recordkeeping has been described as the “mortar between the bricks” of the advice process and critical to an FSCP decision as an adviser is suspended for failures in this area.
As investors increasingly seek to embed ESG considerations in their portfolios, a specialist adviser has offered tips for financial planners who may feel overwhelmed in tackling these complex topics with clients.
