Robert Murphy, managing director at Edison Group, considers the UK’s financial policy post-Brexit now that London is under scrutiny - and says that creating an ESG hub might give the UK a better chance to assert itself as an investment powerhouse.
Following London ‘taking back control’ of its financial services rulebook in January 2021, its position as the financial powerhouse of Europe has come under scrutiny. Lord Hill’s recent listing review looks set to shape financial policy moving forward and, while we still need to see which of his 15 recommendations will be adopted, even if they are all implemented more changes are likely to be needed for London and the UK to keep its head-and-shoulders advantage over its European counterparts.
The Hill review is part of a wider move by the Government to reform the UK financial services industry post-Brexit. In January 2021 we saw a consultation from the Treasury that set out measures to strengthen growth across the UK’s investment industry. Moreover, leaving the EU has given the UK an opportunity to re-examine the taxation of fund management in the hope to attract those asset managers who would in any other case domicile funds in Luxembourg and Ireland, and this was also touched on in the Treasury’s consultation.
Support from the Government is clearly there. Following the release of the Lord Hill Review, the Treasury consultation and other more sector specific reviews such as the recent Kalifa review into UK fintechs, all which recommended changes to policy, they are clearly expressing to the world that the UK is a prime location for investing your money and for businesses to access capital.
Another area where the UK can take a proactive approach to improving its investment environment is by taking a closer look at the make-up of UK-invested funds and providing further incentives to invest in those that are delivering funding to projects and industries in the ESG space. Funds and fund managers are under increasing pressure when it comes to reporting the make-up of the assets that form funds, and this is one of the key driving points for investors, corporates, businesses and even retail investors. As ESG continues to drive news cycles, investors are placing more importance over where and what their money is invested in – as well as the performance. The appetite from investors is certainly there, with responsible investing on the rise. Figures from the Investment Association in March 2021 revealed that UK savers put almost £1 billion a month into ESG funds across 2020, an increase of 66% on the previous year.
Growing the number of funds in the UK as well as growing the number of funds that are invested in ESG-focused companies and technologies will in turn attract more domestic and foreign investment. As the UK continues its drive towards net-zero in 2050, encouraging investment particularly into green technologies will help deliver the government’s ambitious goal.
As investors of all types are looking towards a far more socially conscious future, attracting the establishment, development and growth of funds that echo this will give the UK a better chance to assert itself as the leading location for the investment industry in Europe.
*Robert Murphy, managing director at Edison Group.