James Alexander
Chief Executive, UKSIF
Consumers in the UK have begun to look more closely at where their investments are going and what impact their money is having.
In August last year, Ipsos MORI asked voters to identify the most important issue facing Britain, and 23% of respondents said pollution and the environment. UK consumers have begun to look more closely at where their investments are going and what impact their money is having. We believe sustainability allows for long-term investment which can achieve strong financial returns while promoting long-term environmental and social value.
‘Greenwashing’ risks in investing
The finance sector has long been engaged in sustainable and responsible investing; in particular, the integration of environmental, social and governance (ESG) factors in investment processes. These factors cover the natural environment and climate but also consider wider social issues, such as human rights and working conditions.
When investing sustainably, consider the potential risks of ‘greenwashing’ in the investment market. This is when an investment firm — or its products — makes environmentally or socially sustainable claims, without necessarily implementing the sustainability strategies and actions that can meet these claims. Even good intentions can sometimes fail to meet consumers’ or their funds’ objectives.
Even good intentions can sometimes fail to meet consumers’ or their funds’ objectives.
Navigating through the sustainable investing market
Important things to look for when choosing a sustainable investment product include a company or funds’ claims and delving into their explanations of how they intend to achieve these.
Consumers can also look at how their funds are investing in climate solutions and the evidence of their positive impacts on society and the environment — beyond just mitigating risks alone.
Upcoming sustainable investment requirements
The UK’s financial regulator — the Financial Conduct Authority — is in the process of helping give consumers greater confidence in the sustainable investing market by creating new ‘Sustainability Disclosure Requirements’ and investment labels.
It recognises different approaches to sustainable investing and positively covers both environmental and social issues. These requirements could allow consumers to make better-informed decisions and reduce the risks of ‘greenwashing’ and are a key development to look out for in the coming months.