"The London Stock Exchange is rated as the top sustainable stock exchange by the UN, with 64 green bonds and 14 renewable investment funds." The Department for International Trade (DIT) dives into how the asset management in the UK is building its environmental, social and governance (ESG) proposition at a significant rate.
When we talk about asset management in the UK, it’s easy just to look at our traditional strengths. The UK is the largest centre for fund management in Europe, with total assets under management (AUM) reaching £8.1tn in 2016, a 17.4% increase. That’s larger than the next three European fund management centres combined. Although our large pension funds and sophisticated consumers present opportunities for successful managers, the UK isn’t just a large domestic market. A third of AUM in the UK are managed on behalf of overseas clients, making the UK a world-leading centre for international fund management. Supported by a transparent, fair and well-regarded regulatory system, as well as strong industry bodies such as the Investment Association and TheCityUK, UK-based fund managers benefit from a dynamic and diverse ecosystem across the nation.
The UK government is not taking the success of the industry for granted and has given explicit long-term commitments to the fund management sector through the Investment Management Strategy II. Launched in 2013, and updated in December 2017, the goals of the strategy include:
- Enhancing the dialogue between the government, regulators and industry
- Maintaining stable tax and regulatory environments
- Strengthening the asset management domestic skills pipeline
- Advancing the development of asset management FinTech solutions
- Supporting UK asset managers to be global leaders in developing innovative investment industries (such as green finance and social impact investment)
- Continuing a coordinated programme of international engagement to attract overseas firms to locate in the UK and promote UK firms overseas
In innovative investment industries, the emergence of ESG investment presents a new opportunity for managers. With pension funds and millennials demanding greater access to sustainable investments, it is clear that investors are increasingly seeking more than just a good rate of return on their portfolios. In UK, 1.2% of total AUM are now invested in ESG funds, with strong year-on-year growth in net sales. UK managers are responding to this, developing more options for ESG investors at a range of risk appetites.
The Government is responding to these changes in a number of ways, helping to build the critical market infrastructure to support managers. The UK’s Green Finance Taskforce brings together academia, government and industry to come up with recommendations to strengthen and develop the sector. From promoting climate-related financial disclosures to help fund managers identify green opportunities, to boosting investment into innovative clean technologies through state investment and grant funding, the Taskforce is driving the long-term development of green investment opportunities. This is complemented by the work of the UK Government, British Standards Institute and Green Finance Initiative who are working to develop a robust framework for measuring green investment standards.
But even now, existing UK institutions are taking the lead. The London Stock Exchange is rated as the top sustainable stock exchange by the UN, with 64 green bonds and 14 renewable investment funds. London is ranked by Z/Yen as the top green financial centre in the world. With London already the leading centre in green advisory services, green project financing and financing climate adaptation, London is well situated to offer a complete portfolio of opportunities to green asset managers.