Investors who want to make an impact with their money have plenty of options, but admit to being sceptical of many.
There has been no let up with the launch of ESG and responsible funds in recent years as a new generation of investors put sustainability and the forefront of their finances.
Meanwhile, a selection of green investing funds and investment trusts can help them target companies tackling the impact of climate change and seeking to improve how the world does things
But if you want to invest back better, it can be tricky to work out what good your money is actually doing.
Investors are backing sustainable funds but remain concerned about greenwashing
While demand and interest grows, the funds industry faces an uphill battle over claims of ‘greenwashing’ and whether companies they invest in tick those Environmental, Social and Governance boxes.
The latest Triodos Impact Investing Survey reveals investors are calling for greater transparency for sustainable investments amid concerns funds are not as green as they make out to be.
More people have turned to investing in recent years, especially in an age of low rates on offer from savings accounts.
This paired with increasing environmental awareness – often dubbed the Greta factor after young campaigner Greta Thunberg – has focused minds on the role sustainable investment can play and demand is growing.
The upcoming COP26 summit will only serve to cement the role businesses and investors are expected to take in creating a more sustainable and less wasteful way of doing things, as has the Build Back better rallying cry adopted for the UK with gusto by Prime Minister Boris Johnson.
Investors are certainly chasing down opportunities.Figures from the Investment Association reveal that responsible funds have taken £6.7billion of investment in the first half of 2021. That is some £2.4billion more than the previous year.
And the recent Triodos survey shows three quarters of new investors prefer to invest in funds that make a positive impact on the planet, compared to 64 per cent of all investors.
It may be for good reason. A review published this week by 3D Investing shows investing for positive impact need not be at the expense of financial returns.
Of the 13 responsible funds in the IA UK All Companies sector, 69 per cent outperformed the average over the period.
The average responsible investment fund posted a 58.7 per cent return relative to a return of 44.2 per cent for the IA UK All Companies sector as a whole.
Not-so-green funds risk denting industry reputation
$ 7626 for 8 minutes | Binary options trading strategy investors looking to invest in responsible funds, they have plenty to choose from.
The dramatic shift in investment attitudes has meant the industry has had to adapt quickly.
There has been a proliferation of ESG and sustainable funds in recent years, including Morgan Stanley’s UK Sustainable Fixed Income Opportunities Fund.
In the first half of this year, 21 ESG funds launched in the UK and 372 worldwide, according to Morningstar data.
The launch of these funds suggest they are listening, but the over-saturation of ‘good’ funds could well have jeopardised investment into genuine ESG investment prospects.
The lack of interest for Liontrust’s now aborted ESG Trust in July led analysts to consider whether there were too many ESG funds available on the market.
A closer look at some of the available funds suggests why some investors are fatigued and are increasingly sensitive towards the effects of ‘greenwashing’, where companies exaggerate their green credentials.
The Triodos survey reveals a quarter of consumers who would not currently invest in an ethical fund question whether many investments are as ethical as they make out to be.
This is mainly because of the inconsistency when it comes to the language and approaches applied.
Where some funds use the MSCI ESG screening, others opt to stay in line with the UN’s Sustainable Development Goals.
For example the top holdings in industry favourite Royal London Sustainable Leaders Trust are Prudential, Experian and SSE.
While not necessarily ‘bad’ companies, investors may struggle to see how they are particularly proactive when it comes to the environment.
Others like BMO Responsible Global Equity, whose holdings include Apple and PayPal, seem to put a heavy weighting on tech stocks.Again, these companies have been carefully assessed as fitting the strategy for a reason, but might not quite square with investor ambitions to make a positive impact on the environment with their money.
The vast majority – 79 per cent – of investors surveyed by Triodos are calling on banks and financial providers to be more transparent about where their money is going.
Gareth Griffiths, head of retail banking at Triodos Bank UK, says: ‘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.’
It has meant investors are approaching their investments differently: they are playing close attention to how the funds are actually structured and managed.
More than three quarters of new investors want to see a full list of companies in a fund’s portfolio, while 73 per cent want to know what the end impact of their investment will be.
The current landscape has been dominated by Blackrock’s multi-billion dollar passive investment products, notably its thematic iShares ETFs.It now has more than 100 index and ETFs in its sustainable range.
$ 7626 for 8 minutes | Binary options trading strategy those keen to keep their investments strictly in line with their principles however, an active approach may work better.
A fifth of new investors surveyed by Triodos chose active funds specifically to make sure their investments remain aligned to their values.