Investors demand sustainability expertise from fund managers

Written by Lori Campbell on 15th Mar 2022

Investors now expect their fund managers to do far more than assess risk and return – they also want them to help navigate sustainability issues in much greater depth, a new study reveals.

The research by Triodos Bank, a Good With Money ‘Good Egg’ firm, and ShareAction found that 83 per cent of UK investors want to see their fund manager up-skilling in sustainability and environmental issues. Even more, 85 per cent, want them to help avoid “greenwashing” claims from financial providers.

This rises to 91 per cent of first-time investors (those that have begun investing in the past 12 months) for both responses.

New investors are also demanding much more detailed analysis of the funds they invest in, with 90 per cent wanting their fund manager to conduct in-depth research into each company in a fund to make sure every single investment aligns with their values and personal ESG (environmental, social and governance) criteria.

Investors expect fund managers to act on sustainability

As well as having greater expertise in ethical and sustainable investments, investors want to see their fund managers taking direct action in line with the values of their investors.

Eight in 10 existing investors (81 per cent) want to see their fund manager divest their investments from those that cause harm, which rises to 91 per cent of new investors. Meanwhile, 82 per cent (rising to 92 per cent of new investors) want their fund manager to engage with the companies they invest in directly on issues such as social impact and sustainability.

Bevis Watts, CEO of Triodos Bank UK, said: “Our research demonstrates that the majority of investors are looking for active stewardship from their investment managers, with the peace of mind and expertise that passive funds just can’t provide. A generational shift in expectations is clearly happening, which has the potential to disrupt the investment management industry.”

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New investors prioritise impact over returns

In the past year, a new generation of purpose-led investors have come to financial providers with a greater expectation of sustainable and impact investing. Almost half (48 per cent) of these new investors are aged under 35, and three quarters (75 per cent) are under 45, indicating that positive social and environmental impact is a much greater priority for younger consumers starting their investment journey.

In fact, 60 per cent of those that began investing in the last 12 months think that financial providers should only offer investment ISAs that are sustainable, while 78 per cent believe that financial providers need to do more to help to combat the climate crisis.

As testament to their passion for investing with positive impact, six in 10 new investors (63 per cent) would be happy to settle for lower returns to invest in industries they believe in.

World events and ongoing coverage of the climate crisis is likely leading many new investors to consider their impact, as 56 per cent reported that COP26 made them give greater thought to how their investments impact the planet.

Michael Kind, Senior Campaigns Manager at ShareAction said: “In our view, a responsible approach to investment should be the main consideration for the global money managers who invest money on behalf of retail investors. A true responsible investor sees negative impacts as just as important as financial return, and takes steps to mitigate or avoid these impacts.”

A stark knowledge gap

Meanwhile, a separate study from BlueSphere, another Good With Money ‘Good Egg’ company, reveals the stark knowledge gap many Brits have with their finances. It found that half of British adults (51 per cent) want to invest in businesses that have a positive impact on society – yet 68 per cent haven’t heard of impact investing.

Mark Armstrong, founder of BlueSphere, said: “IFAs (Independent Financial Advisors) should be taking the lead to help educate clients and the public, bringing clarity to what is often a complex and jargon filled area. In an age of greenwashing, it’s more important than ever that we give customers a full picture so they are not misled and can make decisions off their own backs”.

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