SRI and private clientele: The current picture

Sustainable and Responsible Investment strives to reconcile economic performance and positive impact. On paper, this objective unites and attracts many investors. The reason for this is simple: in recent years, communication regarding the vital issues that are protecting Fauna and Flora or the groundswell movement in favor of protecting the climate are regularly in the media spotlight, with younger generations getting majorly involved in these issues that affect them personally.

Having said that, what’s the situation regarding the transposition of these struggles into private clients’ investment policies?

Whilst Sustainable and Responsible Investment, or SRI, is popular amongst the general public, this is currently not reflected in their financial allocations, contrary to institutional investors. There are currently many reasons for this.

Firstly, end clients are too eager to criticise financial market players for appropriating causes that favor them alone. Many note the excessively “marketing” nature of these fund management companies’ approaches, the sole aim being to attract new clients. Greenwashing attempts are still present in people’s collective subconscious. And indeed it is not rare, when one studies these ‘certified’ funds in greater detail, to observe that they are very often simply the reworking of positions that already exist amongst other inhouse funds, that the fund management company has just packaged them in a single new specific fund. To summarise, they’re simply rehashing old products in a new box; only the marketing packaging has changed.

Furthermore, the lack of readability and transparency of the funds offered do not incite these same clients to subscribe to them. The same is true of financial intermediaries. Fund management firms are frequently criticised by financial advisors, through their use of these certifications, of just riding a single media trend wave and only offering this type of placement because a rival fund manager has implemented it in their management strategy.

Moreover, these funds’ positions are not exactly made fully transparent by asset managers and 100% SRI doesn’t seem to exist in the eyes of the public. Indeed, the very definition of SRI certification opens the way for the referencing of companies whose DNA is at the opposite extreme of what clients expect in this respect. This SRI certification is therefore itself a hindrance to its own development. Each fund management company can interpret it in its own way and thus focus on criteria aiming to define a label that can vary from one firm to the next. The Best in Class approach is a perfect example of this. Funds choose issuers who have the best ESG practices and exclude the lowest-rated issuers, even within the same sector. Companies operating in the coal, fossil energy, arms or tobacco sectors can thus be listed just because their ESG rating is better than that of their peers. And what about issues such as ecology for these companies? The client is rarely made aware of such matters.

So what are the tools to accompany the development of SRI among a private clientele?

With the development of these issues, new web portals have appeared whose main objective is to advocate “new finance”, and thus reconcile profitability and ethics. The client henceforth has the possibility of accessing a regularly-updated list of these ‘certified’ funds, of which there are currently a growing number.

Financial intermediaries remain the perfect gobetweens to drive the development of this practice. To do this, total transparency rules need to be established and certification practices erected in order to define a single process enabling a fund to be qualified as SRI or not. By doing this, the financial intermediary will be more capable of accompanying the client with an underlying that they understand and are able to justify in their global allocation.

While this may seem simple at first sight, its application is more difficult. It is important to clarify that the financial savings of most French private clients is locked into life insurance contracts. In this respect, it is particularly complicated for a private client or financial intermediary to target an “SRI” allocation given the referencing problems on the insurer’s side. The latter’s buylist is often too limiting and restrictive for advice through these SRI funds to be fully expressed. The development of SRI will therefore only truly be possible once the insurer can also firmly believe that the SRI range is a genuine expectation of the private client rather than the financial market.

In contrast, it would then be more difficult for this same advisor to put in place and combine certified and noncertified investment funds within a same portfolio.

Guillaume LUCCHINI CEO and founding partner - Scala Patrimoine With a master’s degree in Taxation and Intellectual Property Law and having gained substantial professional experience with various consultancy firms, Guillaume founded Scala Patrimoine in 2014. Built on the model of law offices with a fee-based billing system, Scala Patrimoine is an independent wealth strategy firm that specialises in accompanying company bosses, executive management and short careers. Guillaume is also a Member of the Institut des Avocats Conseils Fiscaux (IACF).