How important have ESG principles past and present been within your investment processes?
For us, sustainability and ESG are embedded principles which have always been very important. We have been managing ethical portfolios since 2002, meaning we know exactly what it means for clients ethics to be reflected in their portfolio. We’ve always been at the dark – or the more ethical – end of this investment spectrum. We understand that ethical investing means managing portfolios to two instead of one criteria.
Over the years, the terminology has changed – ESG, SRI etc. but the values themselves do not change. Sustainable investing has become much more inclusive. Today, every company has an ESG rating and it has to feature it because in a few years’ time they will be required to report it. It’s had a big impact on the investment landscape as the application of ESG principles grows exponentially.
For us, the big game changer has been the increase in ESG data available . It’s the requirement to produce the data, the fact that the data is out there, that it is very quick and there are a number of rating agencies out there.
Of crucial importance is that we understand exactly what investors really want from a product that says it is either ESG or ethical or impact.
We must remember that there’s always an investor at the end of this process, and it’s their perception of what they’re getting because this matters to a client and the relationship they have with their financial adviser. Advisers need to make sure that when looking at ESG investments for clients that they understand the product and aren’t just buying an ESG rating without understanding what that ESG rating is.
Are you paying particular attention or focus to any particular area at the moment?
We are seeing lots of opportunities coming in the post-COVID world, those businesses that are genuinely contributing to the faster end of energy change for example. More broadly, we like businesses which we can see are sharp and ready for the transition.
Are there issues you think the industry needs to be aware of when analysing ESG data?
Yes. The quantum of data you can get from ESG perspectives these days is enormous but it needs to be used and interpreted very carefully indeed.
We have to look at the materiality of the data, and that’s obviously something that’s very subjective. We can decide what data is important and what isn’t. The materiality is where it comes into it.
You have to have qualitative as well as quantitative analysis of any investment you undertake. And that obviously does require a human approach that requires experience and understanding. Not just of the individual assets in which we invest but also of the clients who are buying the products. In this way we make sure that we are really getting the right investment processes for the right products, to the right people. It’s where our experience really counts.
How are you helping financial advisers to engage with clients in sustainable investing?
I believe that at the heart of the process is good, old-fashioned client engagement – we need to focus on ‘Know Your Ethical Client’ – or KYEC as we call it. Put simply, it’s about ensuring that the investments match the individual client’s ethics, and the only way to do it is by advisers getting to know their client’s ethics. We can help with this.
For our discretionary portfolios, we start with a questionnaire to get the detail needed, as each client’s ethics and values will be different. On the whole, they will tend to be pointing in the same direction. They just may be in different degrees and in different ways. That’s where good question technique is so important, so that the adviser can help each client to establish their own individual sustainability outcomes and objectives which really matter to them, as well as their risk tolerance of course.
Within our bespoke portfolios we can then ensure that each client’s portfolio mirrors what is most important to them. It really helps advisers to engage with clients not only at the start of the process but on an ongoing basis as there’s something new almost every month. There are so many things to talk about. We produce a lot of material just so advisers and their clients are kept fully up to date. There are monthly and quarterly updates and plenty of blogs and podcasts on our website as well as our ongoing conversations with advisers.
What are King & Shaxson’s key sustainable investment propositions?
Our Personal Discretionary portfolios are bespoke sustainable investments tailored to each individual client’s ethics. They start from £250,000 and upwards. This helps either those clients who want something specific or for whom it works as part of their overall investment portfolio.
There are also two types of sustainable platform model portfolios which we launched back in 2010. They are the fund- based model portfolios and are very popular with advisers and their clients. They are available across about 19 platforms now and range from Defensive to Adventurous.
Each portfolio has a well-diversified asset allocation strategy – we stick to core holdings and tend to avoid esoteric things. Underlying assets combine equities, bonds, property etc. They are platform agnostic, also wrapper agnostic, so that they can be used in the way which the adviser deems most suitable for the client’s own tax situation and requirements. But also, our analysis runs deep in that we look under the bonnet of ever fund we invest in. We don’t take a fund managers word for anything. We always know the underlying investments, so we will scrutinise all of these on the basis of the underlying holdings. We know that what people do is far more important than what they say. The screening processes we have in place are rigorous and on-going to avoid any greenwash. For more information on greenwashing, watch our recent video here.
Our final product is a hybrid of these models. It has direct equity exposure in addition to collective funds. These portfolios are a little greener and more specific where we go further into impact investment areas , these were made for slightly more discerning client’s needs. It’s a little bit more limited on the platforms and obviously not suitable for all of the wraps.
In summary we have a total of 11 model portfolios which have Dynamic Planner, Defaqto and FE risk ratings and also a full bespoke service that are available for advisers to use.
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This is an except from Wealth DFM Magazine’s comprehensive 2021/22 ESG report. To access the full report, please click here.