Here we highlight the latest results from the annual Triodos Impact Investing Survey.
Scepticism around greenwash is on the rise
Scepticism surrounding the validity of investments labelled as ESG or ethical is increasing. A quarter of consumers who would not currently invest in an ethical fund (26%) question whether many investments claiming to consider environmental and social impact are truly ethical – a figure that has risen from 17% in 2020.
“With many different investments labelled as ‘ethical’, ‘sustainable’ or ‘responsible’, it can be difficult to sift through the greenwash to find funds that actually deliver the impact investors are hoping for,” explains Gareth Griffiths, head of retail banking at Triodos Bank UK. “Looking at independent websites and digging into which companies a fund invests in can really help you to understand how sustainable the investment offering actually is and if it aligns with your values.”
Transparency from investment managers is key
While many are keenly interested in the potential power of their investments to drive positive change, people are cautious about a lack of clarity from banks and financial institutions about how their money is being used.
Seven in 10 of those with investments (71%) want more knowledge and transparency about where their money is invested, up from 65% in 2020, while eight in 10 (79%) think all banks and financial providers should be more transparent about where people’s money goes.
Gareth explains: “To overcome consumer scepticism, fund managers 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.”
How to avoid the greenwash
Lisa Stanley, co-founder of Good With Money, shares her top three questions to ask
- Which companies does the fund invest in? Only revealing the Top 10 holdings is not enough - the firm should detail every sector and company the fund invests in, and why it does, or why not. What else do they invest in? Does the firm offer one or two ‘token’ sustainable funds amidst a sea of mainstream (= fossil fuels) funds or do they have proven depth and breadth in the sector?
- How long has the investment firm or fund manager been managing money in sustainable sectors? Are they truly experienced or are they just hitching a ride on the bandwagon?
- How engaged are they? Do they regularly vote on corporate issues that matter to you, challenging companies and maintaining a dialogue with them on tricky issues, or is there little evidence of this?
Source: Good With Money Guide to First Time Investing
First-time investors are driving demand for investing for impact…
Demand for sustainable investments is being boosted by a new generation of younger, first-time investors – 4 in 10 (39%) of which are under 35 – who are specifically being drawn to investments that deliver positive impact. 65% of new investors – and 83% of investors aged 18-34 – consider at least some of their investments to be “sustainable”, compared to 50% for the average investor.
These first-time investors are choosing investing for a wide range of reasons, including to build greater financial stability, because of low interest rates and the impact of inflation, and having amassed more savings during the Covid lockdowns.
Three-quarters of new investors (73%) say they prefer to choose investments that support positive change for the planet and its people, higher than the average of 64% for all investors.
… and new investors are keeping a close eye on investment practices
As well as primarily choosing some sustainable investments, many first-time investors are paying closer attention to how funds are structured and managed in order to ensure they are responsible and sustainable. More than three-quarters (76%) of new investors want to see a full list of the companies involved in the funds they invest in, while 73% want to know what the end impact of their investments will be.
Nearly a quarter (23%) of new investors have specifically chosen active fund management because they want their investment manager to actively take sustainability or ESG factors into consideration. Active fund management is where portfolio managers make regular investment decisions for the fund, aiming to outperform their benchmark and tightly align with the fund’s values – as opposed to passive, exchange traded (ETF) or index fund management.
Almost a fifth (19%) of these new investors chose active funds specifically to make sure their investments are continually checked to avoid practices that would not be aligned to their values.
People are inspired to use their money more sustainably
Many consumers are looking to use their money to invest in a more sustainable future. Six in 10 consumers with investments (58%) say choosing carefully where you invest your money is one of the best ways to protect the planet, while four in 10 (39%) say the upcoming UN Climate Change Conference (COP26) in Glasgow is inspiring them to want to use their money in a more sustainable way.
The ongoing effects of the pandemic are also a major driver for many, with a third (32%) reporting that Covid-19 has motivated them to explore investing in an ethical fund, up from just 22% in 2020.
Gareth agrees: “Putting your money into impact investments is one of the most powerful choices you can make. Your money can help drive real, measurable positive social and environmental change, while also delivering on competitive returns.”
Capital in any investment product is at risk. The value of an investment may go down as well as up and investors could lose some or all of their money. Currency fluctuations may also affect the value of a Triodos Stocks & Shares ISA. As with all ISAs, the tax benefits depend on individual circumstances, and tax rules may change. The total annual ISA allowance is £20,000, which can be split across different types of ISAs.
None of the information in this article constitutes financial advice. If potential investors are unsure if these investments are right for them, they should contact an Independent Financial Adviser.
About Triodos Impact Investments
Triodos Bank offers award-winning Impact Investment funds available through a Stocks & Shares ISA in the UK – the Triodos Pioneer Impact Fund, the Triodos Global Equities Impact Fund and the Triodos Sterling Bond Impact Fund.
For total transparency, Triodos Investment Management publishes a list of all companies in each fund's investment portfolio. All the investments in the funds have been hand-picked by impact investing experts using a themed approach, which ensures they have a positive impact on society and the environment.