There is growing cynicism among consumers and their advisers that investments are not as green or as ethical as they say they are.
This was the finding from Research in Finance, who presented consumer and responsible investing research at Square Mile and ESG Clarity’s Responsible Pathway event this week.
Some 44% of consumers said their main barrier to responsible investing was trust as to how ethical the investments were, taking the top spot of concerns from last year, in which consumers were most likely to say their main barrier was lack of confidence.
Advisers too are worried about greenwashing, the research showed, requesting greater consistency in definitions from fund managers, and greater transparency. They are “worried that fund managers are jumping on the bandwagon”, said Jack Dominy, research manager at Research in Finance.
He added respondents had mentioned certain investment managers they thought were greenwashing in the research, based for example of news reports.
Jeremy Lawson, chief economist at abrdn, added he predicted an increase in litigation for greenwashing by 2025.
A panel discussion at the event, chaired by Square Mile senior investment consultant Jake Moeller, then focused on net zero, and what it means for portfolios.
Jennifer Wu, global head of sustainable investing at JP Morgan, said net zero was important because as well as looking at climate solutions to invest in, it is important to consider how companies will adapt when inevitable climate change impact is felt. “We need to be prepared to invest in climate adaptation because extreme weather events are going to continue,” she said.
Graeme Baker, portfolio manager at Ninety One, added it is “easy to shift a portfolio to make it look aligned to net zero in the future” but the focus must be on real-world emissions, and taking into account that those sectors that are most important for the transition are also going to be the ones giving your portfolio the largest footprint.
Lawson pointed out ‘net zero’ and ‘net zero by 2050’ are not that same thing, and said “there is no race to net zero at the moment, it’s not something most countries and companies are competing in.”
He added there is no net-zero alignment by 2050 currently, saying “It’s difficult for finance to align when global policy isn’t aligned,” and therefore recommending close attention be paid to what governments are doing at COP26 rather than what they are saying. “Very few countries are reducing emissions in line with pledges they made at a high level and I don’t expect COP26 to be any different.”