Welcome to the first in a new series of articles designed to provide a window into the quarterly discussions of Parmenion’s Ethical Oversight Committee (EOC). As an independent advisory body, the EOC’s mandate is simple but significant: to act as an objective lens on the ESG landscape, helping Parmenion’s ESG portfolios remain robust, transparent, and aligned with the evolving expectations of the investors we serve. Shri Krishnansen delves into the most recent Q1 meeting.
After what many in the industry have described as a "tidal wave" of regulation, we're finally seeing the waters start to settle. However, as the regulatory dust settles, new and more complex ethical dilemmas are emerging – specifically around the role of defence in a sustainable world and the human impact of global conflict.
From a tidal wave to a steady flow
For the past two years, the conversation in sustainable investing has been dominated by compliance. Between the SDR (Sustainability Disclosure Requirements) and various labelling regimes, much of the industry's energy has been spent on getting the house in order.
During our recap, the committee noted increasing signs of emergent similarities between the different labelling regimes, and therefore a more settled regulatory environment. This has allowed us to focus on reviewing our strategies, where we've recently condensed our range of ESG investing solutions to a structure of three actively managed and one passively managed ESG portfolio, with the merger of Responsible Growth into the Sustainable Growth portfolio. While regulation provides a clearer framework for advisers, it also highlights the practical challenges of ethical fund selection and clear alignment with ESG mandates. We spent considerable time discussing the challenges in finding high-quality, sustainable funds in specific sectors – notably in Emerging Markets and UK equities. It's this rigorous under the hood analysis that defines the EOC’s work; we don't just look at labels at face value, but rather we seek genuine differentiation and holdings integrity that align with client objectives.
A prime example of this rigour was our recent decision regarding an emerging market equity fund. Despite its strong characteristics, the committee exercised a reputational override due to concerns surrounding the fund’s ownership structure. This case illustrates our primary function: we aren't here to rubber-stamp funds, but to act as a fail-safe sounding board, helping Parmenion to ensure that the risks of ownership don't outweigh the benefits for its clients.
The defence dilemma: shields vs. swords
The most significant and nuanced debate of the quarter centred on a topic that has moved from the fringes to the centre of recent ESG chatter: defence. For decades, arms has been a simple, binary exclusion for most ethical funds. This is now being debated more.
The committee discussed whether defence can – or should – be viewed as an ethical investment, as ‘ethical’ can mean different things to different people. On one side, there is the national security argument: the idea that a drone used as a defensive shield against an aggressor is a piece of essential infrastructure. On the other, armaments can be used by the aggressor, and there are the additional risks such as the carbon impact of war and the inherent human rights risks associated with the industry.
A recurring theme in our discussion was the lack of transparency. Julia Dreblow, a long-standing member of our committee, pointed out that the reason many blanket exclusions exist isn't just a moral stance; it is a data problem. When you can't verify who a company is buying from or who they are selling to, it becomes impossible for a sustainable fund manager to commit to a clean bill of health. We concluded that while opinions on defence will always vary, we expect fund managers to have a robust, defensible rationale for any exposures, guided by our de minimis limits and a commitment to human rights. As such Parmenion continues to implement a strict no weapons policy across Ethical Growth, Screened Growth and Passive ESG.
The human impact on the ground
Often, ESG discussions can feel academic, but the EOC is committed to looking at the real-world impact of global shifts. Cleona Lira shared a poignant perspective on how global conflict and resource scarcity affect ordinary lives, moving far beyond the spreadsheets of fund managers.
She noted the impact of war on daily living in regions like India, where reliance on LPG gas cylinders for basic cooking means that global supply chain disruptions lead to restaurants closing and families struggling. It was a stark reminder that the transition to renewables isn't just about carbon targets; it's about energy security and protecting ordinary people from being captive to volatile, oil-rich regimes.
This discussion reinforced the EOC’s view that a sustainable transition must be just. When we talk about renewables being off or on in terms of market sentiment, we must remember that the underlying need for growth in this sector is intrinsically linked to national and human security. While geopolitical risk may dominate short-term headlines, the committee believes that these very pressures will ultimately focus global attention on the urgent need for local, renewable energy sources.
Guarding the gate
Ultimately, we have these difficult conversations to support advisers, so they don't have to navigate the changing landscape in isolation. Our role isn't to provide a single, easy answer – because in a world as complex as ours, easy answers are rarely the right ones.
Instead, we provide a layer of oversight that challenges fund managers on their holdings, questions the narrative around controversial sectors like defence, and keeps a watchful eye on the real-world consequences of investment decisions. This year, we're paying close attention to the World Economic Forum’s assessment that while geopolitical risk is a short-term pressure, climate risk remains the number one long-term threat to global business. By maintaining this independent lens, we aim to give you the confidence that Parmenion’s ESG portfolios aren't just meeting a regulatory standard – they're being held to a human one.
Advancing the conversation
At Parmenion, we believe that transparency is the cornerstone of trust. Our Ethical Oversight Committee will continue to meet quarterly to challenge, refine, and oversee our sustainable investment approach. If you'd like to learn more about our ESG profiles or specific sector exclusions, please get in touch with your Parmenion representative.
This article is for financial professionals only. Any information contained within is of a general nature and should not be construed as a form of personal recommendation or financial advice. Nor is the information to be considered an offer or solicitation to deal in any financial instrument or to engage in any investment service or activity. Parmenion accepts no duty of care or liability for loss arising from any person acting, or refraining from acting, as a result of any information contained within this article. All investment carries risk. The value of investments, and the income from them, can go down as well as up and investors may get back less than they put in. Past performance is not a reliable indicator of future returns.
