How will COP26 impact on financial advice in the future
Posted on 22nd June 2022 at 13:38
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I had a small sense of pride to see that the recent COP26 conference was held in my hometown of Glasgow and although I haven’t lived in Scotland for most of my adult life, there is still that connection.
Many of the outcomes of COP26 could have a direct impact on how investments
Only a decade ago, there seemed some reluctance with many clients to consider ‘ethical’ solutions. The general feeling was that in limiting options on areas to invest in, this would reduce the overall return on investment, but how does a client define ethical investing.
What are considered to be ‘sin stocks’?
It is probably important to state what are the sort of funds, which would be considered unethical or having a negative impact:
• Tobacco
• Gambling
• Adult entertainment
• Weapons
But there may also be other areas that could be considered in this category for example:
1. Animal testing
2. Deforestation
3. Nuclear Power
4. Genetic testing
There are funds which are considered to have a positive impact on society and the environment and there are hundreds of these funds available.
In recent times, the focus has been strongly on ESG (Environmental, Social and Governance) considerations as fund managers decide which companies to invest in or avoid using ESG criteria.
What is ESG (Environmental Social Governance)?
ESG is a generic term adopted by investors to evaluate corporate behaviours which include factors like the carbon footprint of an organisation. ESG investing is also known as sustainable investing they look for investments which give a positive return both financially and also on the sustainability of the planet.
The evidence shows it is no longer true that investing responsibly means expecting a lower return. As clients look to invest in a more responsible and sustainable manner, leaving a positive impact on the planet, large inflows are going into the ever-increasing ESG solutions in the market.
What are the responsibilities that fall on an IFA?
IFA’s also now have a regulatory obligation to at least discuss ESG with clients which will only accelerate uptake. The FCA published it’s ESG priorities at the end of 2021 and how the finance sector can contribute to a net zero economy. This strategy document has now been published, for a full copy CLICK here
With Governments globally committed to meeting the targets set out by the UN’s 17 Sustainable Goals, we can expect ESG to become the norm rather the exception going forward.
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