More investors are choosing to invest in a sustainable way, but there have been growing concerns about whether the fund is having a positive impact or is being greenwashed to boost sales.
Research by fund manager LionTrust found that 51 percent of investors surveyed opted to stay invested, up from 41 percent at the end of last year, but it also showed that even professionals are concerned that some funds are just window. Indulge in dressing up.
The main motivation for sustainable investment was the desire to avoid companies or industries that were harmful to society, a factor noted by 54 percent of investors.
This was followed by desire for positive impact, concern over climate change and willingness to invest in line with personal values and principles, all factors cited by 52 percent of investors.
Green and sustainable investing is growing in popularity, but investors worry about greenwashing
But with the number of funds claiming some form of ESG (environmental, social and governance) investment filter, greenwashing has widespread concerns among investment professionals.
LeonTrust said 76 percent of wealth managers and 57 percent of financial advisors said they had concerns, adding that fears were growing.
Simon Hildre of LeonTrust said: ‘With the proliferation of permanent investment funds, so has the concern about greenwashing.
Asset managers have a responsibility for transparency and clear and regular reporting. This includes disclosing the full holdings, explaining why the stocks are held by the funds and the effects of these companies.
‘The impact should cover topics related to the risk of funding for sustainable, carbon intensity against the market and the UN Sustainable Development Goals.’
The desire for permanent funds was highest among young investors, of whom 79 percent under the age of 35 wanted to actively invest in them.
But appetite was also strong among older investors, with 52 per cent of investors in the 35 to 49 and 50 to 65 age group looking for sustainable investments.
However, a major problem for those looking for funds, investment trusts, and ETFs to invest in is that there is no clear definition of a sustainable investment and ESG-labeled investments can vary wildly.
Additionally there is confusion over what counts as sustainable, ethical, impact or green investing, with the concepts often overlapping.
What does responsible investing jargon mean?
How do you tell ESG from SRI and affect investment, and spot greenwashing.
Baffled by the jargon? Read more here.
This can cause investors to spend a lot of time researching the fund and trying to pinpoint exactly what they want to do and invest in.
This, coupled with concerns that some fund managers may jump on the ESG bandwagon to boost sales, means investors may find the issue too complex.
When investment rating website FundCalibre asked its visitors if they were likely to put money into responsibly investing funds, 63 percent said they were.
It said: ‘But what is stopping the other third investors? Confusing terminology, lack of choice and the notion that ESG investing is not yet mainstream enough were among the top three answers.’
Those who answered FundCalibre’s questions said environmental issues were the most important element of the ESG, something that chimes with the popularity of renewable energy funds and trusts.
These manage to tick two boxes for green investors, as they are a relatively simple concept to understand and many also offer good reliable dividend returns.
Ryan Lightfoot-Aminoff, Senior ESG Research Analyst at FundCalibre, said: ‘When it comes to our daily lives, many of us are already making good choices: recycling more, using cars less (or going electric), Consume less plastic, eat less meat… the list goes on.
‘And there has certainly been an increase in investor interest in recent years. But there is clearly more work to be done by our industry to make ESG investing more accessible to investors and to better clarify what funds are available and what they are trying to do. ‘
The enthusiasm for green energy investing is highlighted by renewable energy that claims seven of the top ten spots on DIY investment platform Interactive Investor’s ethical long list of best-selling funds and trusts.
Greencoat UK Wind was the most popular, followed by Gore Street Energy & Renewables Infrastructure Group.
Exceptions to the renewable energy theme were LeonTrust Sustainable Future Global Growth, Civitas Social Housing and Stewart Investors Asia Pacific Leaders Sustainability.
Most bought funds and trusts on the Interactive Investor Ethical Long List
1. Greencoat UK Wind
2. Gore Street Energy
3. Renewable Infrastructure Group
4. NextEnergy Solar Fund
5. Foresight Solar Fund
6. Liontrust Sustainable Future Global Development
7. Civil Social Housing
8. JLN Environment
9. Stewart Investors Asia Pacific Leaders Sustainability Fund
10. Bluefield Solar Income
Source, Interactive Investor, September 2021
One issue for savers looking to make environmentally friendly investments is that if they depend heavily on renewable energy, they will be highly impacted by the sector and especially vulnerable to any slowdown.
It is important – as with any investment – to ensure that green investment themes are balanced and are part of a well-diversified portfolio.
An option for green investors to branch out to could be trusts such as Impax Environmental Markets and Jupiter Green, which target companies helping to combat or mitigate climate change problems and range from firms solving recycling problems. Can offer a wide range of investments. Find sustainable alternatives to cotton, or improve agriculture.
Funds and trusts that have clear and understandable ESG…