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Responsible Investment Framework: IA aims to increase clarity and consistency

The Investment Association (IA) published the Final Report on its Responsible Investment Framework on 18 November 2019 (the Report). The Report was created following an industry-wide consultation led by the IA at the beginning of 2019 regarding the Responsible Investment Framework (the Framework); the proposal for a UK retail product label; and the use of disclosure frameworks.

Responsible Investment

The IA developed the Report in response to a noted increase in interest among investors about where their money goes and how it is invested. “Responsible Investment” is a broad term which according to the IA encompasses:

  • maximising long term returns to manage environmental, social and governance (ESG) risks and opportunities;
  • achieving particular sustainability outcomes; and
  • reflecting a particular set of values and beliefs.

The Framework

The Framework is the first industry-wide system to categorise common approaches to Responsible Investment and aims to bring clarity and consistency to clients. It is supported by definitions of such common approaches to Responsible Investment in its glossary. In order to avoid duplication of existing well understood and widely adopted terms, explicit links have been made to such terms.

Chris Cummings, Chief Executive of the IA believes that following the publication of the Framework, “the investment management industry can now give its customers a clear picture of the opportunities available to them and the confidence that their chosen product matches their expectations.”

Proposed UK Retail Product Label

 A UK retail product label was proposed as a means for investors to quickly identify whether a particular individual is adopting a Responsible Investment approach. The IA believes that it would have the additional benefit of promoting the UK as a leader in Responsible Investment. Although this proposal gained the support of 85% of firms consulted at a fund-level, details of its implementation have yet to be provided.

The use of disclosure frameworks

The final part of the IA’s consultation sought clarity regarding how investment managers are using existing frameworks to disclose:

  • how they have embedded ESG considerations into their investment processes; and
  • how they disclose against indicators such as the UN Sustainable Development Goals.

As there is no one single framework relating to this disclosure, the IA notes that there is a lack of consistency in this area. The European Securities and Markets Authority’s sustainability indicators consultation which is due to be published in Q1 2020 may provide helpful guidance here.

Next Steps

From January 2020, the IA will be asking firms to denote which of their funds should be tagged as having Responsible Investment components. The IA then intends to publish statistics on Responsible Investment characteristics later in 2020. It also plans to set up a working group to consider the use of Responsible Investment terminology in fund documentation, reporting on sustainability and a further review of the proposed UK retail product label.

Guidance for firms is provided in the Report which encourages the use of the Framework, the implementation of appropriate accountability structures to deal with Responsible Investment policies and transparency of communications regarding Responsible Investment.

© Copyright 2020 Squire Patton Boggs (US) LLPNational Law Review, Volume IX, Number 338

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