Scepticism surrounding ‘greenwash’ and the validity of ESG and ethical investments is on the rise, reveals new research from Triodos Bank UK.
The findings of the latest annual Triodos Impact Investing Survey, now in its fifth year, reveal that a quarter of consumers who would not currently invest in an ethical fund (26%) question whether many investments claiming to consider environmental and social impact are truly ethical – a figure that has risen from 17% in 2020.
While consumers are keenly interested in the potential power of their investments to drive positive change, many are cautious about a lack of clarity from banks and financial institutions about how their money is being used. Seven in 10 of those with investments (71%) want more knowledge and transparency about where their money is invested, up from 65% in 2020, while eight in 10 (79%) think all banks and financial providers should be more transparent about where people’s money goes.
What’s more, the majority (54%) of consumers now believe that providers aren’t helpful when it comes to revealing what their money is invested in, up from 49% in 2020.
First time investors actively managing investments to deliver positive impact
Demand for sustainable investments is being boosted by a new generation of younger, first-time investors – 4 in 10 (39%) of which are under 35 – that are specifically being drawn to investments that deliver positive impact. 65% of new investors – and 83% of investors aged 18-34 – consider at least some of their investments to be “sustainable”, compared to 50% for the average investor.
These first-time investors are choosing investing for a wide range of reasons, including to build greater financial stability, because of low interest rates and the impact of inflation, and having amassed more savings during the Covid lockdowns.
Three-quarters of new investors (73%) say they prefer to choose investments that support positive change for the planet and its people, higher than the average of 64% for all investors.
As well as primarily choosing sustainable investments, these new investors are paying closer attention to how funds are structured and managed in order to ensure they are responsible and sustainable. More than three-quarters (76%) of new investors want to see a full list of the companies involved in the funds they invest in, while 73% want to know what the end impact of their investments will be.
What’s more, nearly a quarter (23%) of new investors have specifically chosen active fund management because they want their investment manager to actively take sustainability or ESG factors into consideration.
Almost a fifth (19%), meanwhile, chose active funds specifically to make sure their investments are continually checked to avoid practices that would not be aligned to their values.
Consumers inspired by COP26 and green recovery
The increased scepticism comes at a time when many consumers are looking to use their money to invest in a more sustainable future. Six in 10 consumers with investments (58%) say choosing carefully where you invest your money is one of the best ways to protect the planet, while four in 10 (39%) say the upcoming UN Climate Change Conference (COP26) is inspiring them to want to use their money in a more sustainable way.
The ongoing effects of the pandemic are also a major driver for many, with a third (32%) reporting that Covid-19 has motivated them to explore investing in an ethical fund, up from just 22% in 2020.
Over two-thirds, meanwhile, think individuals need to take personal responsibility for how financial institutions are using their money, with 67% believing that investors should consider if their investments are helping to contribute to positive change.
Gareth Griffiths, head of retail banking at Triodos Bank UK, said: “Putting your money into impact investments is one of the most powerful choices you can make. Your money can help drive real, measurable positive social and environmental change, while also delivering on competitive returns. But with many different investments labelled as ‘ethical’ or ‘sustainable’, it can be difficult to sift through the greenwash to find funds that actually deliver the impact investors are hoping for. Looking at independent websites and digging into which companies a fund invests in can really help you to understand how sustainable the product actually is and what aligns with your values.
“To overcome consumer scepticism fund managers also need to draw clear lines and boundaries on what is sustainable and what is not – for example on fossil fuels, arms or food and farming. In the absence of clear product labelling or guidelines they must be transparent on their approach and align investment choices to the UN Sustainable Development Goals. Active engagement as part of fund management is also critical to actually show positive impact of the investment.”