According to Morningstar, just 55 new sustainable funds were launched in Europe in the first quarter of 2023, compared with more than 200 at the peak in Q4 2021. Assets in sustainable funds have recovered gradually but remain below their late 2021 highs.
However, behind the scenes, the hard work of real adoption is underway.
Asset managers large and small have integrated ESG considerations in their decision-making processes, such that what was once a differentiator for the sustainable houses has become hygiene.
Today, 89 per cent of investors consider environmental, social and governance issues in some form, according to research by Capital Group.
Investors are increasingly on board, with client demand becoming a key driver of momentum. A Dynamic Planner survey conducted in 2022 found growing numbers of clients were asking their advisers about ESG issues without being prompted.
In our software, we have seen a sharp rise in use of our sustainability profiling tool, with 20 per cent of the financial planning firm clients completing risk profiling in March 2023 also filling out the sustainability questionnaire – up from just 5 per cent in Isa season last year.
Increased regulation
And one driver of the slowdown in fund launches is the gradual introduction of regulation that will better protect clients in the future.
No longer is it possible to launch a fund, stick the word ‘sustainable’ in the name and carry on with business as usual. Today, firms are being held to higher standards intended to reduce greenwashing and support investor confidence.
In the UK, that regulation will come in the form of sustainability disclosure requirements (SDR) and fund labelling. Following a significant response to its consultation ending in January this year, the Financial Conduct Authority will now publish its Policy Statement in Q3.
While the final details are as yet unclear, the regulator has said it will seek international coherence with other regimes and standards that will keep the UK at the forefront of sustainable investment.
Consumer duty will increase the onus on advisers to make sure their clients understand the new labels and disclosures, so they can make informed decisions that allow them to reflect their values in their investments.
Recently, the FT published a guide to buying electric cars, responding to the thirst for information among consumers.
Cars are tangible objects that can be touched and test driven, and the purchase process itself is much the same as for a petrol or diesel car – but even experienced car owners understandably feel they need support in navigating a new market category.
