Nearly half of investors are troubled by ‘greenwashing’ firms that bluff about action to combat climate change
- Some 44% cite greenwashing as their biggest concern about ESG investments
- Higher fees and performance worry nearly as many investors
- More than half are open to responsible investing in future, research finds
Nearly half of investors are concerned about ‘greenwashing’, where companies dress up their environmental credentials to mislead people wanting to combat climate change.
Investments not being what they claim to be was cited by 44 per cent of investors as their biggest worry about putting money into ‘environmental, social and governance’ (ESG) products.
Some 42 per cent are bothered about whether such investments would have higher fees and costs, according to research by financial services firm Quilter.
Greenwashing: Are your investments really environmentally friendly or are you being misled?
Meanwhile, 38 per cent were uneasy about whether they would perform better than investments that do not take account of ethical issues.
But 56 per cent of investors said they were likely to start considering responsible investing more than they do now.
There is sustained demand for ESG investments, according to Quilter, which surveyed 1,500 people aged 35 and over across the UK who have £60,000 either invested or available to invest.
But it notes: ‘Investors have become increasingly sensitive towards the effects of greenwashing, where companies exaggerate their green credentials to capitalise on growing demand for environmental products, as concerns around climate change have increased.
Greenwashing threatens to undo all the good work and progress that has been made so far in responsible investing
Eimear Toomey, Quilter Investors
‘The Treasury Select Committee group of MPs recently argued the Financial Conduct Authority should be handed powers to tackle greenwashing as part of an effort to cut carbon emissions.’
Separate research recently revealed that two out of three investors bear ethical issues in mind while the rest focus solely on financial returns.
But investing jargon around ‘environmental, social and governance’ goals tends to baffle investors, with most admitting they have little to no understanding of the terms often bandied around by the finance industry.
Just a quarter were confident they knew what ‘greenwashing’ meant, while the rest were unsure, had no idea or had never heard of it, according to the research by Close Brothers Asset Management.
It surveyed 2,000 adults who currently hold a general investment account, a stocks and shares Isa, a self-invested or managed pension, or a share dealing account.
Close Brothers defined greenwashing as: ‘Conveying a false impression or providing misleading information or a misleading narrative about how a company and its products are environmentally sound or positive.’
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Baffled by the jargon? Read more here.
Quilter’s research found investors fit broadly into four categories:
– 42 per cent know what responsible investment means and will include investments of this type as part of their portfolio;
– 33 per cent of investors know what it means but are not actively making investments of this type now;
– 14 per cent are currently not interested in responsible investment as part of their portfolio;
– 11 per cent are fully aware of what responsible investment means and investments of this type need to be or already are a major element of their portfolio.
Eimear Toomey, head of responsible investment at Quilter Investors, says: ‘The explosion in popularity of ESG investments has been well documented, but it is encouraging to see investors are not simply seeing it as a fad and want to make a real difference.
‘These investors want companies to act in a more responsible way and it is clear that words will not be enough to placate them.
‘Greenwashing threatens to undo all the good work and progress that has been made so far in responsible investing. It is crucial that fund groups invest in the way that they say they will, so it is important investors hold them to account on this.
‘We are going to continue to see a proliferation in ESG investments, and as such it is vital investors do their homework and understand what it is they are investing in.
‘Doing the research and finding out how your managers are investing responsibly, what they are holding and how this could make a difference will allow you to make an informed decision and give you the confidence to invest in a responsible manner.’
>>>How to invest responsibly: What to check when choosing a fund to ensure it aligns with your goals