Some attitudes can be much too binary; 'I want to avoid fossil fuels' is a frequent statement from clients, but when one asks about transitioning companies etc that view changes.
The unexpected holdings box provides fund managers with a perfect platform to include investors in their decision-making processes and the move towards better social and environmental outcomes.
By expanding the information relating to the companies held within the fund in this manner, it would also be possible to include information about engagement and stewardship, because this is currently too vague in my opinion.
Asset managers investing their clients' money should be much more willing to discuss the areas on which they engage, the processes in place and also the steps they are taking to address any lack of progress.
While I understand the need for commerciality in certain regards, the opaque nature of many of the discussions and the lack of easily identified progress makes me wonder just how meaningful these engagements might be, and therefore how much real world progress will arise.
The elephant
Finally, it's worth addressing the rather large elephant in the room in connection with unforeseen holdings: passives.
I cannot imagine how this is going to work, but acknowledge that there needs to be a place for passives within the sustainable labels regime.
Setting aside the huge numbers of underlying holdings in some trackers, the questionable ability to engage in a meaningful manner with such large numbers, and issues around the volumes of information that would be required to provide reassurance and transparency, there is the simplest fact: passive managers are passive, so if the constituents of the index change, they are not actively a part of the process, and they therefore cannot choose to exclude a company, let alone to offer information about said company.
How that might be solved I have no idea, which is another reason why I simply cannot wait for the labels to arrive, possibly as a Christmas treat!
Mike Head is a director at advice firm Ethical Investors and managing director of research firm Ethical Screening
