The City has had a turbulent 18 months since March 2020 with market volatility, the emptying of workers from financial hubs and a marked increase in popularity of alternative investments like cryptocurrency and retail investment platforms. Trading, investment management and finance has never had a spotlight shone on it so brightly since the months following 2008 and the fall of Lehman brothers and with the rise of new retail investment platforms and technology providing access to the markets for the man on the street, there is now a new landscape that so-called institutional investment banks and businesses have to navigate. The financial world and the city has seen a seismic shift in both culture and practice and the question being asked in the square mile is “how do we move quickly with the times and stay ahead of the curve?”
The influx of amateur investors hit the headlines earlier this year, during high-profile clashes over several so-called “meme” stocks. Widely publicised, these involved major hedge funds battling with retail investors swapping tips on social media sites such as Reddit or Twitter and driving up prices on stocks for companies including GameStop and AMC. The current tussle globally between institutional investors and the rising popularity of retail investment platforms has dominated column inches for months with commentators trying to future gaze but without success. The latter are engaging as the disruptors to the markets, whereas the former is struggling to come to terms with their positioning, profile and awareness of their own corporate reputations.
While the media headlines are dominated by cryptocurrency, retail investors and amateur “bedroom” traders, those in the square mile who have been dialling into their meetings via Zoom for the past year or so are increasingly concerned and preoccupied about the state of play for when they return back to their offices. Their reputations have taken a knock over the last year and how do they attract those investors back to help their portfolios grow and get back to promoting their businesses responsibly.
Ahead of COP26, the U.K government has been working hard to turn the City of London into a world leader for green finance. The Treasury has just released details of a £15bn UK programme of government bond issuance, with the proceeds being spent on environmentally friendly project with the aim being to turn Britain into a world leader for low-carbon financial services. The Chancellor Rishi Sunak will also launch a separate green savings bond for UK consumers, which he will say is to be used to help fund infrastructure schemes and create more green jobs across the UK.
What does this mean for those institutional city investment platforms and those management funds who have traditionally been resistant to wholesale changes? Times are moving fast and the makeup of what investors want and how they access and utilise their funds are shifting. Funds, investments management houses and banks need to get in front of the narrative and start to understand the shifting needs of their clients as well as the increasing desire for greener stock options and portfolios that reflect the modern investors’ appetite.
A total of 128 investors are now part of the Net Zero Asset Managers initiative — up from just 30 with $9tn in assets in December. Signatories have pledged to set short-term emissions reductions targets across their investment portfolios for 2030. They will also work with clients who elect to reach net zero on their investments by 2050. The investors are expected to report their exposure based on Task Force for Climate-related Financial Disclosures (TCFD) recommendations, a framework backed by former Bank of England governor Mark Carney.
In making their net zero calculations, they can include so-called carbon offsets that involve long-term carbon removal only where there are no technologically or financially viable alternatives to eliminate emissions.
These wholesale changes in the community are challenging the businesses and CEOs to lean in and embrace the change whilst demonstrating to their clients that they are forward-thinking and embracing initiatives that show they are responsible. Those who do not will undoubtedly be left behind very quickly and have their bottom lines suffer as well. The City is certainly facing challenges and enforced change and those who are able to embrace new practices and ways of communicating as well as bridging those gaps will certainly profit in the long-run.