As the Financial Conduct Authority looks to crackdown on greenwashing with sustainable fund labels, Association of Investment Companies (AIC) research has found financial advisers and wealth do not have faith in funds’ claims over sustainability.
The AIC surveyed 200 intermediaries and found just 1% “completely trust” sustainability claims from funds.
Financial advisers and wealth managers were asked to rate their trust in funds’ sustainability claims on a scale of 1 (do not trust at all) to 5 (completely trust).
Only 1% of respondents responded with a ‘5’ score, while the majority (56%) responded with ‘3’, indicating limited trust.
Fears of greenwashing could be allayed by more specific information, including examples. One wealth manager said: “I would need to see real examples in the portfolio. I would need them to say, ‘We looked at company X last year. We really, really liked it. It scored really well on all our stuff but then when we thought about it from a sustainable point of view, we didn’t invest in it.’”
Support for ESG investing remains strong
Despite scepticism about ESG claims, financial advisers and wealth managers remain supportive of ESG investing.
Some 79% agreed that “investments should make a positive difference as well as a financial return”.
Nearly half of respondents (48%) consider their firm to have been an “early adopter” of ESG investing – from 37% last year.
A further 31% said their firm had recently bought into the value of ESG, while only 1% said ESG was “not something my firm is interested in”.
A perfect storm
The AIC said that 2022 has created a perfect storm for sustainable investing.
Significant numbers of financial advisers and wealth managers said that higher energy prices, the Russia-Ukraine war, market falls and rising inflation and interest rates have had a negative impact on their likelihood to invest in sustainable funds over the next 12 months.
Advisers and wealth managers are more pessimistic about the likely performance, risk and charges of ESG-oriented funds than they were last year.
While 47% of last year’s respondents thought that ESG investing was more likely to improve performance, that had shrunk to 36% this year.
A majority (61%) of respondents now think ESG investing will lead to higher charges, compared to 46% last year.
And 45% said ESG investing is likely to lead to higher risk, compared with 32% in 2021.
Nevertheless, advisers and wealth managers still expect demand for ESG investing to increase at least a little over the next 12 months. But those who expect it to “increase significantly” has halved from 38% to 19% this year.
Timely FCA decision
Nick Britton, head of intermediary communications at the Association of Investment Companies (AIC), said: “Advisers and wealth managers are overwhelmingly on board with ESG and sustainable investing, but they’re also keenly aware of the risks of greenwashing with only one-in-100 completely trusting ESG claims from funds.
“In the light of this, the FCA’s decision to impose stringent rules on how funds present their sustainability claims looks timely, and it’s one we fully support.
“ESG investing has faced a perfect storm this year, and this has clearly affected expectations about performance and risk.
“Market falls, higher inflation and the war in Ukraine have made many advisers and wealth managers more wary of investing in sustainable funds in the short term, though they still expect demand for ESG investing in general to increase over the next 12 months.”
