Brooks Macdonald has launched a sustainable investment team as climate change regulation for the financial industry comes to the fore with consultations from the Financial Conduct Authority and the Bank of England’s Prudential Regulation Authority (PRA).
Led by Ben Palmer (pictured) as head of the responsible investment research team, and Edward Park, investment director, the wealth manager has introduced two strategies: an avoidance-based approach to sin sectors plus a strategy that seeks investments that provide solutions to sustainability issues.
Stock exclusion remains popular despite many people arguing environmental, social and governance (ESG) investing is shifting in favour of companies that aim to achieve positive impacts, said Hortense Bioy, director of passive funds and sustainable research at Morningstar.
“Many studies show that while excluding stocks purely on the basis of ethical criteria may harm returns, excluding stocks on the basis of ESG performance may lead to better risk-adjusted returns. Many strategies combine both: ESG integration and exclusions,” Bioy said.
Fossil fuels are examples of stocks investors might exclude for both ethical and financial reasons, she added. “Fossil-fuel companies are facing climate risks, including stranded assets, regulatory risks, and reputational risks, which may have a material impact on companies’ valuation.”
Brooks Macdonald said its responsible service is integrated into its centralised investment proposition.
FCA and PRA join for climate change consultation
The Brooks Macdonald launch coincides with a consultation paper from both the FCA and PRA addressing the financial industry’s approach to climate change.
Andrew Bailey, chief executive at the Financial Conduct Authority (FCA), said the regulator welcomes the joint consultation, launched on Monday. “The impact of climate change on financial markets is uncertain but legal frameworks – at a global, European and UK level – have already begun to adapt to reflect a move to a low carbon economy,” Bailey said.
He explained that the FCA can play a key role in providing more structure and protection to consumers for green finance products and ensuring that the market develops in an orderly and fair way.
The PRA and FCA are setting up a climate financial risk forum for climate change risk mitigation and to support innovation in green finance. It will involve industry representatives, technical experts and other stakeholders, with plans for the first meeting to take place in early 2019.
Park said the consultation represents a “a step change in regulatory scrutiny”.
“The central bank’s aim is to make banks and other institutions consider the longer term systemic impact of their corporate activity and incentivise them to consider non-financial elements in their decision making process. The regulator’s path of travel towards greater integration of sustainable criteria into decision making reflects the growing public importance of responsible corporate activity.”
