- According to industry body AIC, people want “clear and factual” information.
- Preference is given to exceptions, inclusions, expert assessments and measures of influence.
- Support for the goals and principles of the UN and the size of the ESG team are at the bottom of the list
- City regulators have just unveiled plans to crack down on greenwash.
A new study shows that what people most want to know is what will be screened out and what will be screened out when they risk their money in green investments.
The list of excluded and included sectors is rated by private investors as the most useful information, followed by expert fund ratings and environmental and social impact indicators.
People want “clear and factual” disclosures, according to the Investment Firms Association, which released its findings as city regulators unveiled plans to crack down on “green money” by the financial industry.
Negative vs. Positive Selection: Investors want to know which sectors and types of companies ESG funds will choose.
Today, the Financial Conduct Authority proposed restrictions on the use of terms such as “ESG” – meaning “environment, society and governance” – “green” and “sustainable”.
“There is a growing number of investment products that are positioned as ‘green’ or make broader sustainability claims,” the watchdog notes.
“Exaggerated, misleading or unsubstantiated claims about ESG credentials undermine the credibility of these products. FCA wants to ensure that consumers and businesses can have confidence that products deliver the sustainability features they claim to have.”
The AIC Investor Survey found that when people analyze green investments, they rank support for the UN goals and principles as the least useful piece of information, while the size of the ESG fund’s team came in last.
The industry body also conducted more in-depth interviews with some investors who showed a strong preference for greater consistency and peer review when green funds are compared against each other.
How useful are green investment labels?
AIC’s findings included the following:
– About 55% of private investors agreed with the statement: “I think exclusion is not the answer and it’s always better to engage with companies and try to influence them.”
– But 33% agreed with the opinion that “I think there are certain industries/activities that should just be excluded from funds with ESG/sustainable purpose” and 12% disagreed with any of the statements.
– People are more skeptical and pessimistic about investing in ESG than they were a year ago, likely reflecting the fund’s relatively poor performance in the first half of 2022, with 60% considering such issues compared to 65% in 2021.
– Among those who do not consider ESG issues when investing, 55% are not convinced by the statements of fund managers, compared with 27% last year.
– Across the board, 58% of investors distrust the requirements of ESG funds, up from 48% last year.
– When it comes to breaking down the terms included in the ESG, private investors rank the environment as the most important at 3.5 on a scale of one to five, while governance comes in second on a 3.2 rating and social questions are the third in 3.1. .
– When asked to rate the importance of specific issues, 60% responded to climate change, 56% transparency and disclosure, 55% pollution, 46% waste prevention and 41% human rights.
– About 53% would completely exclude from their portfolio investments related to child labor, 43% of pornography, 40% of repressive or controversial government regimes, 34% of firearms, 32% of animal rights violations, 32% of tobacco and 13% of fossil fuels.
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– The share of investors who believe that the use of ESG criteria is more likely to improve returns decreased from 33% to 22%, while the share of those who expect it to reduce returns increased from 20% to 25%.
– About 14% believe ESG investments are likely to be less risky than other investments, up from 20% last year, up from 29% who think it is higher risk, compared to 23 %.
– And 45% believe that they will have to pay higher fees for investing in ESG, and 5% believe that the fees will be lower.
AIC interviewed more than 400 private investors of different age, gender, investment assets and region, but all had money to invest and at least one investment product.
All chose some of their own investments, although just over a quarter also used a financial advisor or wealth manager.
Annabelle Brodie-Smith of AIC says: “Private investors are clearly interested in ESG disclosures and find several types of disclosures useful.
“However, clear and factual disclosures are preferred, which may appear more abstract or subjective.”
What are investors saying?
AIC highlighted the following investor comments from its survey.
On the green label: “For organic products, there is the Soil Association, so you know that if you buy a product that has the association mark, that in fact their organic standards are very strict, and you know that you got a good product. Is there something like investing in ESG?
Interaction with firms against the sale: “I believe in giving people a chance, but they need to be shown that they are putting in the effort to make a difference… There’s a step where you say enough is enough, and then that stock has to be sold.”
What should be excluded from ESG investments: “Of course, I would look at what is in the top 10 holdings, because there are things that I simply would not invest in. Some of them may be gambling companies and, to some extent, probably major oil and fossil fuel companies. ..
Credit: www.thisismoney.co.uk /