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Wealth Management

THE NEED TO DEMOCRATISE ESG DATA – BARRIERS TO ESG INVESTING FOR INDIVIDUAL INVESTORS

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Kelly Perry, Director of ESG at Edison Group

 

ESG investing is now firmly in the mainstream and is here to stay. A recent report by a leading US investment bank found that ESG flows into funds increased 102% year-to-date, with November commitments reaching $47 billion compared with an average of $13 billion in 2019, with many anticipating this trend to continue well into next year.

Similarly, in Europe, rising demand for ESG investments drove managers to change the strategy or investment profile of 253 European funds in 2020, helping to push regional assets invested in ESG funds to a record €1.1tn by the end of December.

However, surveys and reports continue to cite investors’ significant fears over the quality and fragmentation of ESG data and say the issue is at the height of their concerns. Assessment has yet to be standardised, dozens of competing metrics are vying for validation and, as investor education continues to progress, many of the data points conceal as much underlying truth as they reveal.

The majority of the relevant ESG information is only reaching a proportion of large institutional investors, which have the resources and teams needed to analyse such complex data on all the stocks they want to consider. This leaves a number of investor groups, such as family offices, and retail investors, being bypassed.

One way to address the issue of lack of consolidation and consistency, is to push for the standardisation of ESG data. The European commission is doing this with the EU Action Plan on Sustainable Finance, which will impose ESG reporting obligations on European companies from 2021. This initiative has been widely accepted by ESG investors across the board, who say one of the main factors in holding back the development of the industry is a lack of consolidation.

As part of the initiative, the sustainable finance disclosure regulation (SFDR) took effect on the 10th March to ensure fund managers, financial advisers and other regulated firms disclose information on various ESG considerations to potential investors, and on their websites. The resulting framework of regulations aims to streamline the criteria financial market participants use to define, measure and report on the sustainability attributes of economic activities.

In a post Brexit world, it should not be assumed that EU Law will no longer apply in the UK and that the SFDR regulations are insignificant to UK-based financial market participants. In July 2019, the UK Government published the “Green Finance Strategy” which highlighted that they would ‘match the ambition’ of the EU’s action plan and their commitment was reiterated again at the end of 2020. Despite detailed initiatives not yet being disclosed, it is key for those operating in the UK to prepare for such or similar regulations to be implemented across our regulatory framework.

However, standardisation of ESG data does not help fix the issue of this information bypassing groups such as family offices and retail investors. While individual investors are expected to increase their allocation to sustainable investments within the next five years, looking at current ESG data may only lead to more confusion. They are either overwhelmed by the masses of unstructured data, or they are drawn into contradictory ESG scores from third parties that make it even more difficult to decide where to invest.

Further to this is the fact that ESG data isn’t provided to individual investors in an easy to digest format. Investors may also be worried about greenwashing and the extent to which the investment offered to them is sustainable, however aren’t provided with the facts in a way that make it easy to understand. In a recent study of individual pension investors, when ESG integration was explained in an accessible way (through a short animation presentation) two-thirds said they would want some or all of their pension to invest using this approach. So, it is clear that the demand for this type of product among individual investors is there, the information just needs to be explained clearly.

Therefore, it is vital that ESG disclosure and ESG ratings / scores are regulated and standardised so that there is no confusion as to how far an ESG tilt goes on a specific investment. For this to happen there needs to be a drive for further regulation that consolidates data and which provides an easy to reference comparison of ESG based investments for retail investors and institutional investors alike.

As a result, Edison launched a new ESG solution, ‘Edison ESG Edge’ reports, which review companies’ ESG current performance and trajectory across the most significant and stringent criteria. The reports have a standardised structure and a ratified, forward-looking data set of drivers and future performance indicators, which will make assessing ESG performance easier and help democratises investors’ access to ESG insight, allowing them to make more informed investment decisions. As ESG establishes itself firmly in the mainstream, it is crucial that all relevant data makes its way to all interested parties, not least retail investors.

 

Wealth Management

WHAT WILL TRADING FLOORS OF A POST-COVID WORLD LOOK LIKE?

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Ganesh Iyer, Chief Marketing and Strategy Officer, IPC

 

The last year brought around a monumental change to the way most people work due to the impact of the pandemic, and the financial services industry was no exception. The last few months, though, have provided hope that life could very soon return to ‘normal’ with the strong vaccination efforts around the world.

This time provides the perfect opportunity for all of us to consider the best aspects of remote working in a bid to create a new concept of what a healthy work-life balance should look like. One way financial firms could achieve this is through developing distributed hub-and-spoke offices or putting in place the infrastructure so people can work on a longer-term basis from remote locations. But for this to happen, the financial services community needs to overcome the challenges of ensuring security, reliability, resilience, compliance, all while adhering to strict regulatory requirements.

 

Importance of flexibility

As we look towards the future, banks such as JP Morgan and Goldman Sachs have recently informed their employees that they should be prepared to return to offices again in the coming weeks. News like this may seem like the financial services sector is keen to return to pre-pandemic ways of working, but this is not necessarily an outlook supported by the whole industry.

For example, the Financial Times reported that there are differences between North America and Europe over the speed at which bankers should return to their desks, with some US executives calling for a swift return to pre-pandemic normality while many European banks – such as London-based HSBC and France’s Société Générale – are taking a different approach. These variations demonstrate a need for banks to remain flexible to the ever-changing circumstances and differing views, especially as the sector has been quite effective in working productively away from the trading floor.

However, even for larger institutions, the balance between flexibility, security, reliability, and scalability is a challenging task. There are many firms that are still experiencing significant pressure on costs and resources, and there is still uncertainty around what the future will bring. It is important that firms consider whether there needs to be an even split between homes and offices, or if some employees will prefer to permanently work remotely, as well as prepare for any future scenarios that may require remote working at scale again. The list of questions goes on and they may be difficult to answer, but they are fundamental to the choices that financial firms will make regarding the vendors they work with and the technologies they implement.

Fortunately, many of the elements that address these concerns already exist – it is just a matter of implementing them in a way that is right for firm-specific needs. In the last 10 years, there has been a growing trend towards firms utilising the cloud and taking advantage of the subscription model, which has enabled technology vendors to create solutions that combine flexibility with reliability, and scalability with certainty. The subscription model benefits firms of all sizes and ensures everyone has access to the same state-of-the-art technology as their competitors.

There are also several well-proven benefits of leveraging technology solutions through a subscription, or software-as-a-service (SaaS). As most businesses adopting a cloud-native environment will know, subscriptions mean companies only pay for the solutions they need, while also having the choice to expand and consume more as the business grows. A subscription model also means firms will not be implementing aging technologies, as SaaS is evergreen given it can be seamlessly updated and upgraded in the background, with new delivery channels, access mechanisms and markets added and made available on-demand.

 

Adaptable trading environment

Being able to trade at any time, from anywhere and from any device in a way that is secure and compliant is a huge competitive advantage during this uncertain climate.

For example, a newly established firm requires a solutions provider that can offer the latest, most efficient, and affordable technology that is scalable. Additionally, all businesses are now very much aware of the importance of resilience – both now and for the future – and require a solution that offers an element of futureproofing, enabling them to adapt and maintain their competitive edge for any unforeseen events or challenges that may come their way. This means technology and infrastructure providers need to provide a higher standard of service and constantly evolve, update, and upgrade their tech so that it operates seamlessly and transparently for clients.

 

Supporting the post-COVID trading world

There are many unknowns and uncertainties about what our post-COVID world will look like, but one thing that is certain is that there will be change. Regardless of whether firms choose to revert to pre-pandemic ways of working or not, almost every industry has learned valuable lessons based on the experiences of the last year of the vital need to be flexible and adaptive in order to be able to pivot in whatever direction the business needs to take to thrive and maintain resilience. By leveraging the right technologies, adopting a cloud-native environment, and using the subscription model, financial firms can ensure they are ready to embrace the working environment of the post-COVID world in whatever form it takes.

 

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Finance

A BRIEF GUIDE TO TRADING IN CRYPTOCURRENCY SECURELY

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Trading in cryptocurrency is becoming increasingly popular in the financial world. Crypto’s huge rises in value over recent months has encouraged many to consider it a valid and important way to invest their money. However, it can be tricky for someone new to the world of crypto to know how to start. The process of setting up can take a few days, but once you’re ready to go, it can be fairly simple to start trading.

 

Find A Crypto Wallet

To store crypto, you will need a cryptocurrency wallet. There are many wallets out there to choose from, in both software and hardware forms. You could choose a free to use software wallet, to begin with, and then invest in a more secure hardware wallet if you plan to hold amounts of crypto for the medium to long term. Hardware wallets typically cost anywhere from £50 to £150, so it is worth doing your homework and finding the right wallet for your needs.

 

Sign Up With A Brokerage

You will need an account with a brokerage service to begin trading. It would be best if you looked for brokerages that offer good security, an easy-to-use interface and plenty of cryptocurrencies to choose from.

You will need to provide some identification to open an account with a reputable brokerage, and it may take a few days to get your account verified. Therefore, it is vital to do your research and ensure that the brokerage you choose is legit before providing any personal information.

 

Get Help From Experts

Once you have your account up and running don’t rush to buy your first Bitcoin. As a beginner to the world of crypto trading, there are plenty of potential pitfalls, and talking to experts can go a long way to reducing the risks.

Check out Traders Of Crypto, a cryptocurrency community that provides expert, collective knowledge to those starting out with crypto trading. There you can find plenty of free guides to help you on your trading journey.

 

Choose Your Crypto

The next step is to decide on the crypto you want to trade in. There are thousands out there to choose from, with the most well-known being Bitcoin. The more popular the crypto, the more likely it is to remain stable, so it may help to start with Bitcoin for your first transactions.

Once you have some experience, you could branch out to smaller altcoins, though it is often wisest to keep most of your trades to the bigger coins.

 

Make Sure You Have The Capital

You will need sufficient capital to buy and trade cryptocurrency. You can add this to your brokerage account, typically by bank transfer or debit card payment. It is crucial to keep in mind that the value of crypto frequently changes, so ensure that you are spending only what you can afford.

 

Start Trading

You can start by either trading cash for crypto or crypto for crypto. However, keep in mind that there may be brokerage costs for each trade, so you should choose your trades wisely.

 

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