"The sector needs to put more effort, resource and time into thinking about how to communicate ESG credentials to clients."
Its latest report reveals greenwashing is one of the biggest concerns for financial advisers when it comes to ESG. 69% of advisers cite it as a concern for their business, with one in five (20%) saying they are ‘very concerned’ about the risk and a further 49% identifying as ‘somewhat concerned’.
The report also shows retail investors have significant appetite for excluding controversial holdings and many say that they’d consider moving money if they found it were invested in stocks linked to sectors they were opposed to.
The biggest concerns are weapons, tax avoidance and animal testing. Consumer sentiment towards fossil fuels appears to have evolved and the report notes a much higher tolerance in 2021 for engagement, rather than exclusion. Just 24% of investors would definitely want to move their money if they knew it was exposed to fossil fuels.
Despite the significant consumer appetite for sustainable investing, concerns over transparency and the danger of greenwashing are a concern for both advisers and investors. Many investors report feeling unable to see sufficient detail to ascertain a fund’s credentials. The sentiment is echoed by advisers, with just 33% of advisers agreeing that current ESG fund communications are good enough to support the conversations they need to have with clients.
Boring Money CEO, Holly Mackay, commented: “As personal financial concerns continue, investors’ appetite to prioritise sustainable investing has slightly fallen in 2021. In part we can attribute this to much greater concern about greenwashing. Appetite for positive global change has not diminished but trust in the sector to be the agents of this change has fallen, as consumers struggle to find the proof points they require. Advisers are even more concerned about the reputational risks of inadvertently misleading clients. The sector needs to put more effort, resource and time into thinking about how to communicate ESG credentials to clients. Simply using the same old broken factsheet template isn’t helping anyone. Lengthy annual PDFs are a good start but are too hard to find and digest for the majority.”
Anastasia Georgiou, director of client solutions at Morningstar, added: “We understand that with ESG investing, investors and advisers want to see evidence of both impact and returns, and concerns over greenwashing mean data and analytics are more important than ever. We hope that Morningstar’s independent sustainability framework can be a tool for advisers to go beneath the surface, with both qualitative and quantitative screens, as they help clients find investments that meet their long-term risk and ESG considerations.”
