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What do investors want from “green” investments?

17/11/2022

We’ve written in the past about “greenwashing”: the practice of making investments seem greener than they really are to encourage investors to choose them over their competitors. But what does “green” actually mean?

In reality, it means different things to different investors. The Association of Investment Companies recently conducted some research into what investors want from green investments. Here’s what they found. 

 

Exclusions are key

The most useful information that an investment claiming to be green can offer, say survey respondents, is the exclusions: they want a full list of the types of company or sectors that an investment firm will not invest in. Interestingly, this was only marginally more important than positive screening: a list of the types of company or sectors that the investment company aims to invest in.

In joint third place in terms of importance were ESG fund ratings (such as Morningstar’s sustainability rating), and measurements that show the investment firm’s environmental and/or social impact. 

Rounding off the top five was the ability to see a statement of the company’s ESG policy/strategy. 

 

What is less important?

At the bottom of the list of eleven green investing labels that participants were shown was the size of the investment company’s ESG team. Also rounding out the bottom three were two pieces of information regarding the UN.

Respondents felt that details of how the investment company was contributing to UN Sustainable Development Goals, as well as whether the firm had signed up to the UN Principles for Responsible Investing, were less important than other information regarding how “green” an investment really is. 

 

What’s next for green investing?

The AIC research also reveals that 58% of investors say they do not trust funds’ ESG claims – a figure that has risen from 48% over the last year. With greenwashing rife, the FCA has proposed new rules to improve investors’ trust in sustainable products: a package of measures that could include sustainability labels on investment products, as well as restrictions around where certain green terminology can be used. Should these rules come into play, it will be interesting to see how investor perceptions of the green investment market change. 

 

“Stable Rise Limited is not authorised or registered by the Financial Conduct Authority. The marketing materials are not intended to provide financial advice nor promote any individual financial products.”

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