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EQ Investors: Three things we think will happen in 2022

By Louisiana Salge, Senior Sustainability Specialist at EQ Investors.

Sustainability has developed into a significant part of the investment landscape in recent years. In 2021, investors concerned about climate change and social justice, successfully pushed companies to make changes amid record inflows to funds focused on environmental, social, and corporate governance (ESG).

My predictions for sustainable investing in 2022 are based on this pace of change continuing.

Clearer regulatory frameworks

It is fair to say that the standardisation within the sustainable investment space has been mostly led by industry practice and collaboration.  This is now changing for the UK, on the back of various EU directives increasing the disclosure and reporting standards for responsible investment products and providers, as well as introducing more explicit expectations of advisers.

As part of the UK’s green finance strategy published late last year, we expect an increased role of the UK regulators in the responsible investment industry, including the Bank of England, FCA, FRC and The Pensions Regulator. At a global level we anticipate more standardisation in how sustainability is reported against, spearheaded by the International Sustainability Standards Board (ISSB) which was established last year at COP26 in Glasgow.

We expect the next year to bring greater clarity over disclosures, transparency, labels, and expectations of financial advisers in driving the take-up of sustainable investing.

At EQ Investors (EQ), we are already working to provide feedback on some public regulatory proposals. These include the Sustainable Disclosure Requirements (SDR) for corporates and finance, and associated FCA ‘labelling’ scheme for financial products (funds). While the details are not yet formalised, different labels will carry different disclosure requirements, improving transparency for end-clients.

Increased scrutiny on reflecting clients’ sustainable preferences

In my view the labelling scheme for funds and associated mandatory disclosures on minimum requirements – if detailed enough – will help the industry. Greater transparency around a fund’s investment objectives and achieved outcomes will help match an investor’s sustainability preferences with the options available to them in the market.

However, financial advisers are still crucial to help clients understand their options, explore their preferences, and provide advice that matches these as best as possible to a diversified, risk rated model portfolio service or portfolio strategy. The regulator is currently working on how the crucial position advisers hold can be best incentivised and regulated to get all clients access to suitable sustainable products and increase vital sustainable finance flows from private wealth.

To pre-empt any more stringent incoming regulations, I expect most financial advisers to extend their centralised investment proposition, to include several different responsible and sustainable strategies that can match a range of different investor preferences.

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