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Sustainable Investing Has a Language Problem

After years of debate and tinkering with the naming of sustainable funds, surely we can do better than describing them as Article 6, 8 and 9?

 

The investment industry is, I think, doing a really good job at sustainability. A growing army of funds now have a sustainable mandate and fund managers are out there engaging on behalf of their investors and calling companies to account on a daily basis – stewardship reports from Aviva, Invesco and others detailing such activities have all landed in my inbox this week and it’s great to see managers voting “no” on over-generous remuneration packages or acquisitions and takeovers that won’t benefit the company or its stakeholders.

 

Regulators, too, are helping to drive this by encouraging in some cases and mandating in others for fund managers to do more to explain to investors exactly what they’re doing – and to deliver on it. Greenwashing just ain’t gonna cut it any more.

 

But one area where there is still an awful long way to go is in the language we use to talk about this stuff. EU legislation brought in last month – the catchily-titled SFDR – means firms must label funds depending on how sustainable the mandate is. It’s a great idea that will help investors more easily group funds based on how important ESG factors are in the investment process.

 

The problem? Investors now have to choose from an unappealing menu of funds classed as Article 6 (all funds), Article 8 (general ESG funds), or Article 9 (funds with a sustainable objective). Years of debate and tinkering later, are these are really the best names for these categories they could come up with?

 

People these days sniff at the old language of “light green” and “dark green” that was used to describe legacy ethical investment funds, but I’d argue that those basic descriptions gave outsiders more insight to what those funds did than the moniker “Article 8”.

 

Interest in sustainable and ESG investing is picking up. If we are to maintain that trend then we need a serious rethink on the language we use to talk about it, or we risk alienating a generation of investors who could really make a difference.

 

Deliveroo IPO: Patience Required

Newsflash: investments don’t always go up.

 

It’s an important rule that the market seems to have forgotten in recent years. No wonder people were shocked by Deliveroo’s much-lauded stock market debut. The fast food delivery firm started trading at 300p and had dropped to 276p by this morning. Deliveroo’s IPO has been accused of “bombing”, “flopping”, “plunging”, and “crashing”.

 

Sure, it’s not ideal, but is an 8% fall on one day really the end of the world? We’ve seen far worse in recent years – remember the day after the Brexit referendum? This is why we boring folks at Morningstar always urge caution, a long-term view, and not panic-selling.

 

Investing is not about doubling your money in a single day – sorry to be the bearer of bad news – it is about growing your money over the long-term. And on that basis, it’s no bad thing if the market realises that an IPO is nothing more than an opportunity to buy (or not) a company if you believe in its long-term prospects – it is not a get-rich-quick scheme.

 

Pick and Mix Approach

In the investment world, all too often things tend to get reduced to an either/or debate. Active or passive, funds or trusts, growth or value. My colleague Lewis Jackson spoke to a fund manager this week who pointed out something that should be blindingly obvious but which is often forgotten: you don’t have to choose.

 

The whole point of building a well-balanced, cost-effective portfolio is combining all of these elements to create something that fits your needs. It’s not like voting in a General Election or going to a football match – you don’t need to pick a team. Pick a bit of everything and reap the rewards.

 

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