“Rainbow washing” and research
Non-professional investors must do their research if they want to ensure they are investing in sustainability and not just clever marketing. “Rainbow washing” is a phenomenon where companies market their sustainable credentials or highlight the UN Sustainable Development Goals they support without any proof about how they are working to achieve them.
It’s important to look at how meaningful those claims are. A company can claim they are researching climate-mitigation technologies, but if in reality that only represents 0.5% of their Research & Development budget, the claim is a little exaggerated.
At Tilney, Smith and Williamson, we invest often in funds, where we have no control over the underlying companies the funds are invested in. Therefore, it’s important for us to understand how sustainability influences a fund’s investment process, how they measure sustainability and how they practice stewardship. Meeting with the manager to fully understand their investment style and philosophy, and to question them on their underlying holdings is essential.
We do a huge amount of due diligence before making any new investment, but it remains difficult for consumers to carry out due diligence to the same degree.
Climate risk, COP26 and nature-related impacts
Climate risk is potentially the biggest risk markets have ever faced. Understanding climate risk, even if only at a high-level, is very important to protect long-term investments. This is a quickly developing area, so overall understanding is currently relatively poor. Climate change represents a global systemic risk, but one where the implications are little understood and the timing of these are entirely unknown.
A lot of investing is looking at different scenarios and climate is one of those. The Bank of England  has designed several different scenarios that represent different risks, but what investors lack is consistent quality data to help us model for different scenarios.
Aside from climate risk, sustainable regulations, both financial and non-financial, are increasing, and public understanding and concern on these issues are continuing to grow. Biodiversity presents an almost equally existential threat as climate, but it’s a tricker concept to evaluate, and impact on biodiversity is harder to effectively measure than GHG emissions. We are seeing some movement towards this aspect of sustainability from consumers.
Hopefully, the Task Force on Nature-related Financial Disclosures (TNFD) will eventually have the same impact as the Taskforce on Climate-related Financial Disclosures (TCFD). 
Wider, standardised reporting in this area is essential if we are even to begin assessing companies’ impacts on biodiversity and for governments to begin regulating.