One in five investors don’t know if they hold any ethical investments

ESG valuations

One in five (21 per cent) UK investors do not know if any of their stocks and shares, funds, ETFs or private pensions are classed as ethical according to a new report, ‘ESG: Is the investing landscape changing for good?’ from the personal finance comparison site finder.com. 

Potential investors are being put off through confusion and mistrust, with 15 per cent not planning to invest ethically as they either don’t know what firms are ethical, don’t understand what makes a company ethical or don’t trust that companies that say they’re ethical truly are. 
 
An ESG fund typically has a collection of companies that show strong environmental, social and corporate governance standards, although this isn't the only way ethical funds are measured. It is perhaps no surprise therefore that investors are confused, with finder.com identifying at least 12 different ESG rating systems being used in the markets. 

This isn’t stopping everyone from investing ethically, though, as almost six in 10 (57 per cent) investors believe they hold some form of ethical product. However, only a third (34 per cent) have deliberately sought out an ethical company or fund/ETF. 
 
This leaves almost a quarter of (23 per cent) of investors who have ended up with ethical investments without intentionally buying them because of their credentials.  
 
There may be a misconception that ESG companies will only be those that are explicitly involved in a sector such as clean or renewable energy, but this isn’t the case. finder.com analysed the top investments in the ethical portfolios listed by five leading robo-advisors, and the five most commonly included companies included Microsoft, Unilever and Walt Disney. 
 
The performance of ethical investments is the main concern for those that are considering making any sort of future investment. Half (49 per cent) would only consider making ethical investments if they thought they were likely to perform as well as, or better than, other investment options. 
 
In contrast, just 28 per cent of potential investors would back ethical choices if they thought they were likely to get lower returns than other choices. 
 
A further fifth (22 per cent) of potential investors aren’t considering ethical investments at all; this includes 8 per cent who don’t believe ethical investments will perform as well as traditional options. 
 
Zoe Stabler, investments writer at finder.com, says: “Many of us are ditching plastic straws, consciously recycling and paying even closer attention to David Attenborough, and an increasing number are also looking at how they can invest more ethically. Robo-advisors are taking notice of the changes and introducing new ethical portfolios which can help their users to choose, but there’s more to be done. We found that a sizable number of people who are choosing not to invest ethically put it down to a lack of trust or understanding in what makes an ethical choice. It’s especially difficult for those building their own portfolios - with no clarity on which companies are ethical choices, people are forced to do more research to find investments. 

“There needs to be a robust way of filtering out non-ethical choices, such as weapons manufacturers and fossil fuel companies and comparing potential investments against others in terms of environmental, social and governance (ESG) frameworks. A new EU Sustainable Finance Disclosure Regulation, which the UK is likely to adopt, could help to prevent greenwashing, which has been a concern among investors.”