The government recently published its Green Finance Strategy, setting out its ambition to reinforce and expand the UK as a world leader on green finance and investment.
Not long before this, the Labour Party outlined its five missions for Britain, placing the same objectives at the heart of its plans for the UK economy.
We support both these aims. While there are some who may disagree with the final destination – net zero – it is clear that, in order to adapt and sustain the next stage of economic and industrial progression, we will have to focus on securing growth in a way that is more considerate of the environment than has previously been the case.
But while these initiatives were welcome, they were, in my view, lacking.
Ignoring the role of retail could mean a huge opportunity lost
There are four mentions of the word ‘retail’ across the government document – none of which relate to the role retail investors can play in driving towards net zero, which continues to be overlooked.
Chronology may be an important factor in this. The Financial Conduct Authority has only recently begun thinking about what environmental, social and governance (ESG) means for retail, as we’ve seen in its recent consultation on Sustainable Disclosure Requirements (SDR).
Meanwhile, our own member engagement has shown the need for clarity and articulation of expectations continue to shine through, as well as consideration of the potential unintended consequences of this proposed regulation.
In conjunction with associate members Alpha FMC, we will shortly be publishing a new piece of research providing clarity on where our industry currently stands on this issue.
It finds the proliferation of ESG definitions and interchangeable language used throughout financial services has undoubtedly caused confusion for clients.
This is supported by the FCA’s qualitative consumer research, documented in its recent SDR consultation, which found the terminology used in sustainable investing was not always intuitively understood.
The proliferation of ESG definitions has caused confusion for clients
Our survey reveals firms are finding it difficult to provide consistency to clients. For example, one respondent noted that “wealth managers are responsible for telling clients what ESG means” but we note the FCA-proposed naming and marketing regime within its consultation is an initial attempt to address this issue.
However, while limiting the use of certain terms may help to prevent potential misselling of sustainable products, there is still a need to tackle client comprehension on this topic and seek some standardisation in the terms relayed in marketing materials.
These challenges, and the subsequent impact on educating clients about ESG, may help explain firms previously referenced inability to identify specific facets of ESG investing they feel are of the most importance to their clients.
The picture being painted here is one whereby firms are finding it challenging to report to and educate clients around ESG investing and do not necessarily have the regulatory clarity they need to have full confidence in their approach. This is a shame and, to the points made above, a potential opportunity missed.
One way or another, I strongly believe the private capital of retail investors should be a central pillar in moves from any future government to rebuild, refocus and rebalance our economy.
The opportunity has been laid out in no uncertain terms to the institutional market but what it means for retail investors is still unclear.
As above, this may be a function of chronology – the retail market is not as developed as the institutional market. But, again, I return to the absence of clarity we have in comparison to our institutional colleagues.
The private capital of retail investors should be a central pillar in moves to rebuild, refocus and rebalance our economy
By giving the advice sector and direct to consumer sector the tools it needs to both manufacture and distribute products to retail investors, the government and regulator have the opportunity to supercharge the drive towards net zero.
There are of course other considerations for us to take account of – and I will no doubt return to these in future – but by ignoring the role of retail altogether, what promises to be a bright and exciting future could become a huge opportunity lost.
Liz Field is CEO of the Personal Investment Management & Financial Advice Association
