As readers know, I’m interested in the value savers get from their money and the majority of my thinking has been the amount of money savings produce (the outcome). But we all know there is clean and dirty money, what doth it profit a man that he gains the whole wide world but loseth his soul? We value the way our money is managed and the use to which it is put – the Christian parable of the talents tells us that putting money to no use is a sin (Tumelo tell us that a share not voted is a waste).
There are two questions that I worry about as a consumer
- Can I measure the social , environmental and the governmental good of my investments
- and can I know for sure that what I am told is not just marketing gibberish (green washing)
I know I am not alone. Their is frustration amongst many people I work with that promises are being made around net zero that may or may not be met , but that those making them are promising without accountability for delivery.
And this has translated into regulatory action. The latest can be read from here
Although the consultation is enormous , running to 179 pages, it’s import is in three diagrams which act as a funnel to three labels that can be attached to ways that we can look at sustainability (in all its forms)
The FCA start with what the Temptations called the “ball of confusion”, which is made sense of by establishing a six step process that leads to less green washing less harm and more value for consumers
This is distilled down into a second diagram which tells us what the FCA intends to do, ensuring consumers get more information , less hoodwinking and a way to get to funds that make their money matter (the way they want it to).
And here the FCA do something very good indeed. They work out that by using just three labels , they can standardise the way that products are promoted , searched and bought.
What the FCA is saying is that there are really only three ways of doing things.
Firstly you can invest in assets which are focussed on sustaining the planet (in its purest form, this is what you buy when you purchase a carbon credit)
Secondly, you can buy into assets which have the capacity to shift the dial on sustainability by improving their own performance. This could be the justification for investing in carbon intensive assets – like power stations or coal mines (though you’d be taking a bet your money would help close down the coal mine and convert the power station to use clean energy )
Thirdly there are investments into organisations that can make an impact – making this planet a better place to live. Tumelo has got £25m in funding to make this planet a better place to live.
The FCA is not alone in this, this week – at Davos – a protocol was set out by “world leading insurers” and the United Nations as to how net-zero targets should be set
The Protocol outlines five target types within three target categories (i.e. two types within the emissions reduction category, two types within the engagement category, and one for the re/insuring the transition category).
Same concern – same ball-park solution.
What are we buying?
There are two things that we are paying money for when we invest sustainably.
- the enterprise contribution of underlying assets – ie the outcomes contributed by
the issuer of the asset, independently of actions by the investor - the investor’s contribution – ie the additional outcomes that can be attributed to
the actions taken by the investor in respect of its assets
We are buying the manager of the asset’s “enterprise contribution”.
And – when we outsource the investment to a fund manager, we are buying the investor’s contribution. Of course we could be the direct investor, in which case we are cutting out any middlemen . There is a third way where we may not have any right to change the way assets are managed but can “express an interest”. This influence is known as stewardship.
How does this translate into Value for Money?
There is an established way to measure how much our money matters to the client and it is known as TCFD. TCFD stands for the task-force for climate related disclosures and the Government requires the people who manage our pension money to disclose what it’s doing to improve sustainability using the TCFD framework.
In time , we will grow sufficiently comfortable that what is being reported is the truth and nothing but the truth. Right now – we are not so sure, which is why the FCA is spending 179 pages of CP22/2o nailing things down.
When we are able to work out the amount of good that is coming from the enterprise and investor’s contributions , we can put a value on our pension money’s ESG. It may, and I hope will, become a part of the value we put on the money we get when we retire. Of course the same goes for other forms of money but my focus is on retirement savings.
To use a word I hope I won’t have to use too many times again, the value we have contributed to improving sustainability is “additionality”. And it has to be additional rather than a part of the central equation of VFM because the single focus of VFM is the member of the outcome. The additional measure is the quality of that outcome.
I suspect that, as with “quality of service”, the “quality of enterprise and stewardship of our investments” will ultimately be fully integrated into VFM, though we have a way to go till we get there.
This doesn’t have to be a ball of confusion….
