Why unhelpful you might wonder?
All weapons are controversial to someone, so knowing that 'controversial weapons' refer to weapons of mass destruction, cluster munitions, land mines (and others, depending on whose definition you follow) is specialist knowledge.
How to interpret jargon
How is a non-specialist IFA or investor supposed to interpret such a statement?
If investors are being misled, particularly in relation to strongly held views, this undermines trust in their advisers and the asset manager and their offerings.
Trust in financial products, services and advice is essential, so it is unsurprising that the FCA and other global regulators are paying such close attention. As an adviser, how is it possible to minimise or eliminate the impact of greenwashing?
Some fund managers make it very easy to ensure holdings align with the views of an investor - they list all of their fund holdings with a description of the activities in which each engages.
For funds which only provide a top 10 holdings list, you can ask managers for a full list and a breakdown of areas that might
cause concern to an investor.
Transparency is an essential component of building and maintaining trust, and fund managers need to be proud of where they invest.
If that includes fossil fuels, they should be able make the case to explain why, and not hide behind such meaningless statements as those previously outlined.
If an adviser is constructing a bespoke offering for a client, this information, alongside fund selection tools, will make it possible, whether that be environmentally focussed or driven by a range of sustainability or ethical avoidance issues.
An adviser could decide to adopt a house view, which combines avoidance of controversial and unsustainable activities, and encouragement of positive impacts that will appeal to the majority of clients.
This can simplify the process and, by focussing in this manner, enable the adviser to have greater knowledge of the offering and engage more fully with both managers and clients.
Where avoidance is required, funds that apply some form of negative screen make the selection process easy.
Many investors, however, seek a combination of both positive and negative, so the process must be adapted to accommodate this.
Possible solutions
One solution is to select funds with overtly positive or environmental themes.
It will depend upon the particular negative issues that concern an investor, but a water or forestry fund is unlikely to invest into gambling or armaments.
The easy solution once again is simply to ask the manager whether the positive themed fund has any exposure to the issue of concern (tobacco/fossil fuels/child labour etc.)
If the manager is unwilling or unable to answer it should be a source of concern to both you and them.
