Guillaume Prache, managing director at retail investor association Better Finance, said the group is concerned the industry will “water down” what’s essentially a “once in a generation” opportunity to bolster retail investors’ rights.
Retail clients make up about a quarter of direct investment flows in Europe, according to the European Fund and Asset Management Association. On top of that, insurers and pension funds manage roughly 40% of total flows, much of which represents money saved by regular people. So the finance industry can’t afford to mess up this moment.
Money managers who aren’t “running around like scared chickens right now” probably “haven’t understood the magnitude” of the new regulatory mix due to take effect in August, said Eric Pedersen, head of responsible investments at Nordea Asset Management.
Unless firms advising retail investors do their job properly, it “puts every step of the chain really in jeopardy,” Pedersen said.
Quilter Cheviot’s Woodward said it probably won’t be enough for advisers just to hand retail clients a questionnaire and hope they’ll understand their ESG demands. The goal is “to actually have a conversation,” she said. There are so many different ways to do ESG, and clients will need to talk through categories spanning everything from impact to thematic, stewardship, focus and integration, among others; that creates lots of room for interpretation, and potentially even greenwashing, Woodward said.
Individual investors shouldn’t assume they’ll have a good feel for what might be lurking in an ESG fund, said Shila Wattamwar, global head of ESG retail and wealth at Morningstar Sustainalytics. They’ll need to look under the hood, and “they might be quite surprised by the holdings they might have,” she said.
Eric Balchunas, senior ETF analyst at Bloomberg Intelligence, sums up the challenges facing ESG in the same way as Winston Churchill once tried to sum up Russia: “a riddle, wrapped in a mystery, inside an enigma.”
The investing form has morphed into something that’s “overblown with hype,” Balchunas said. Ultimately, “people are finding it’s too inconsistent.”
--With assistance from Lisa Pham and Saijel Kishan.
This article was provided by Bloomberg News.