- A new generation of investors interested in sustainability has emerged.
- With Responsible and ESG Funds, Investors Struggle to Understand What’s Good
- We highlight some of the funds and investment trusts that try to help the planet.
Investors who want to make an impact with their money have plenty of options, but many admit to being skeptical.
No stone has been left unturned in the launch of ESGs and responsible funds in recent years as a new generation of investors have put stability and the forefront of their finances.
Meanwhile, choosing green investment funds and investment trusts can help them target companies dealing with the effects of climate change and improving the way the world works.
But if you want to invest smarter, it can be difficult to figure out what exactly your money is doing well.
Investors Are Backing Sustainable Funds But Worried About Greenwashing
While demand and interest grows, the fund industry faces an uphill battle over claims of ‘greenwashing’ and whether those companies invest in those environmental, social and governance boxes.
The latest Triodos Impact Investing Survey shows investors are calling for more transparency for sustainable investing, amid concerns that the fund isn’t as green as they point out.
More people have turned to investing in recent years, especially in the era of the low rates savings accounts offer.
This combined with growing environmental awareness – often called the Greta Factor after youth campaigner Greta Thunberg – has focused attention on the role of sustainable investment and increasing demand.
The upcoming COP26 summit will only serve to strengthen the role businesses play and investors are expected to create a more sustainable and less wasteful way of doing things, as outlined in Prime Minister Boris Johnson’s Build Back Better Rallying Row for the UK. has been adopted. .
Investors are certainly chasing opportunities. Figures from the Investment Association show that responsible funds took in £6.7 billion in the first half of 2021. This is some £2.4 billion more than the previous year.
And a recent Triodos survey shows that three quarters of new investors prefer to invest in funds that make a positive impact on the planet, compared to 64 percent of all investors.
It can be for good reason. A review published this week by 3D Investing suggests that investing for a positive impact should not be at the expense of financial returns.
69 per cent of the 13 responsible funds in the IA UK All Companies sector outperformed average during the period.
The Average Responsible Investment Fund reported a return of 58.7 percent as against a return of 44.2 percent for the IA UK all companies sector as a whole.
Not-so-green funds jeopardize the reputation of the industry
For investors looking to invest in responsible funds, they have a lot to choose from.
The dramatic change in investment outlook has meant that the industry has had to adapt rapidly.
ESG and sustainable funds have proliferated in recent years, including Morgan Stanley’s UK Sustainable Fixed Income Opportunities Fund.
According to Morningstar data, 21 ESG funds were launched in the UK and 372 across the world in the first half of this year.
The launch of these funds suggests they are listening, but over-saturation of ‘good’ funds could jeopardize investment in real ESG investment prospects.
LionTrust’s lack of interest in the now defunct ESG Trust in July prompted analysts to consider whether there were too many ESG funds available in the market.
A closer look at some of the available funds can reveal why some investors are weary and vulnerable to the effects of ‘greenwashing’, where companies exaggerate their green credentials.
Triodos survey reveals that a quarter of consumers who currently do not want to invest in ethical funds question whether many investments are as ethical as they are.
This is mainly due to inconsistency when it comes to language and applied approaches.
While some funds use MSCI ESG screening, others choose to stay in line with the United Nations Sustainable Development Goals.
For example, the top holdings in the industry favorite Royal London Sustainable Leaders Trust are Prudential, Experian and SSE.
While not necessarily ‘bad’ companies, investors can struggle to see how proactive they are, especially when it comes to the environment.
Others like BMO Responsible Global Equity, whose holdings include Apple and PayPal, weigh heavily on tech stocks. Again, these companies have been carefully evaluated as fitting the strategy for a reason, but they may not square off perfectly with investor ambitions to make a positive impact on the environment with their money.
The vast majority of investors surveyed by Triados — 79 percent — are calling on banks and financial providers to be more transparent about where their money is going.
Gareth Griffiths, Head of Retail Banking at Triados Bank UK, says: ‘Fund managers also need to draw clear lines and limits on what is sustainable and what is not – for example fossil fuels, weapons or food and farming – to remove consumer doubts. Is.
‘In the absence of clear product labeling or guidelines, they must be transparent on their approach and align investment options to the UN’s Sustainable Development Goals.’
This means that investors are looking at their investments differently: they are paying close attention to how the funds are actually structured and managed.
More than three-quarters of new investors want to see a complete list of the companies in a fund’s portfolio, while 73 percent want…