As we move towards a future that prioritises sustainability, the ongoing introduction of legislation signals a significant shift in the regulation of sustainable investing and practices within the wealth industry.
At Saffery Trust, we have been supporting clients investing in the environmental, social and governance (ESG) sphere for close to two decades. At the outset, very minimal attention was being paid to sustainability in any sector, and the market challenges and opportunities were relatively unknown. Working in partnership with an ESG investing pioneer, we have since been on a long, and fascinating journey with clients and intermediaries alike, as ESG moved in from the fringes of the market.
Much like our service offering in the emerging digital assets and cryptocurrency sector, regulation and legislation have significant roles to play in either attracting or deterring high-net-worth individual, family, and corporate clients’ interest in ESG principles and investments.
As private client service providers, we welcome the introduction of regulation which can better protect our clients and their wealth, while supporting global sustainable development goals.
UK Sustainability Disclosure Requirements
An example of recently introduced legislation which will benefit the ESG sector is the UK’s Sustainability Disclosure Requirements (SDR). The SDR were introduced in 2022, with full implementation set to roll out from the end of this year.
This legislation is more than just a regulatory milestone; it represents a broader movement towards greater transparency, consistency, and accountability in sustainable finance.
The implementation of the SDR, with its three distinct investment labels provides a clear framework for categorising investments based on their sustainability credentials. These labels are designed to address different aspects of sustainability, creating a more standardised approach that can help guide clients, and their trusted advisors, in aligning their investments with their personal values.
Greater clarity
One of the significant benefits of the SDR, in my view, is that it brings greater clarity to ESG terminology. In the past, terminology surrounding ESG investing has been vague and inconsistent, leading to confusion for investors who want to make ethical choices.
Our robust due diligence processes and expertise of the sector have helped us to understand and translate ESG terminology to help minimise our clients’ exposure to “greenwashing”, and the SDR will enhance our ability to continue to do this.
The three labels introduced by the SDR – “Sustainable Focus”, “Sustainable Improvers”, and “Sustainable Impact” – and their clear definitions will support our ability to articulate the sustainability credentials of difference investment products and providers, heightening informed decision-making processes.
Transparency and accountability
The SDR marks a new era of enhanced transparency for ESG in the wealth industry. Service providers – including investment managers – will now be required to provide clear, standardised disclosure about the sustainability characteristics of the investments they recommend. This change is expected to build trust among investors, who are highly conscious of mitigating the risks of “greenwashing”. This regulatory scrutiny is a welcome change and will help to distinguish genuinely sustainable investment products from those that may not live up to their advertised commitments.
Opportunities and challenges for service providers
While the SDR brings significant benefits, it also presents certain challenges for wealth industry professionals. Implementing the new requirements will require adjustments to existing processes, as firms must now evaluate and categorise their investment offerings based on the SDR framework. This may involve additional training for staff and the development of new tools or resources to assess ESG performance accurately.
However, these challenges also present opportunities. By embracing the SDR framework, service offerings can be enhanced, providing clients with a more tailored approach to sustainable investing, something we have delivered over decades. The ability to clearly differentiate between various types of sustainable investments will enable wealth managers to have more meaningful conversations with clients about their preferences and goals, ultimately leading to stronger client relationships and better investment outcomes.
Aligning investments with values
The introduction of the SDR marks a pivotal milestone for investors seeking to align their personal values with investment goals. The three labels provide a structured way to cater to a range of objectives, from investing in businesses that are already sustainable (Sustainable Focus) to supporting businesses with a commitment to improvement (Sustainable Improvers), and those who want their investments to make a measurable positive impact (Sustainable Impact).
Conclusion
The increased legislation around ESG, embodied by the introduction of the SDR in the UK, is set to transform the wealth industry. By standardising the way sustainable investments are categorised and disclosed, the new framework brings much-needed clarity and consistency.
As the industry adapts to these changes, it is essential that client service providers view this new regulatory environment not as a compliance burden, but as a valuable tool for guiding clients towards investments that truly reflect their values and contribute to a more sustainable future.
Find out more about our ESG services here.
