Advisers will continue to play critical role in responsible investing

Oksana Patron

20 September 2022

With a growing global recognition in responsible investing, advisers will continue to play the critical role in helping their clients identify their preferences as RI has become integral to fiduciary duty.

Zenith Investment Partners head of responsible investment and sustainability, Dugald Higgins, said that the industry had reached a tipping point where “the intersection of social licence and regulatory action are underpinning a permanent change in the investment landscape”.

Among many challenges related to responsible investing, which was once mostly centred around negative screening, Higgins said there was a lack of consistent terminology, with increasing regulation attempting to cut through these issues.

Going forward, there would be more focus on the development of global sustainability disclosure standards, fund labelling and mitigating greenwashing.

Higgins also warned that the development of standards in Europe, the UK and the US may foreshadow what the future would look like in other countries like Australia.

“For example, market participants in Europe are already required to disclose how they account for sustainability risks in decisions and products, with funds required to be classified based on the degree to which ESG and sustainability is a consideration,” he said.

“Regulation is also increasingly capturing advisers, with developments across major markets moving to meaningfully emphasise and even change advice requirements regarding RI considerations.”

The Australian Securities and Investments Commission (ASIC) has global harmonisation was desirable while taking into account local conditions and acknowledged that “Australian advisers should actively consider the implications of a similar regulatory framework for their businesses.”

“Like all investment concepts, RI strategies will exhibit periods where performance is challenged and it will be important for advisers to help clients understand what expected outcomes look like and why,” Higgins noted.

“The concept of ‘adviser alpha’ doesn’t just apply to the more traditional concepts of risk and return, it is also going to play a pivotal role in facilitating responsible investment preferences as well.”