A review of 22 investment websites found that not one provided retail investors with the means of excluding deforestation risk from their search.
LONDON, 11 March 2021. Growing demand for sustainable or environmental, social and governance (ESG) investments has been matched by budding retail investor interest in funds that allocate capital to sustainable businesses that avoid funding environmental and social harms. Yet, despite the rapid increase in ESG retail products, asset managers and retail investment websites are not keeping pace with the trend – missing out on the opportunity to provide investors with ESG investment choices that fully match their requirements and reflect their values.
A newly-published report from financial think tank Planet Tracker reveals the challenges that retail investors face in identifying sustainable/ESG investment products across a portfolio of investment websites and portals. Despite some asset managers investing heavily in funds that allow their clients the ability to focus their capital on businesses that are actively reducing the harm they cause to the planet, they are failing to make these results visible to their potential investors due to a lack of adequate search and selection tools.
In turn, the report highlights that although 78% of mutual fund providers and 64% of ETF providers surveyed offered ESG investments, the actual choice on offer was small. On average, ESG investments accounted for only 7% of the investments available across the websites. What’s more, out of the 22 websites surveyed, over 70% failed to provide an ESG filter for investors looking to narrow down their search results.
Should a retail investor want to filter by specific ESG risk, findings reveal there are little to no provisions in place for such a task. For example, none of the websites surveyed allowed the potential investor to exclude deforestation risk.
Deforestation is a particularly pressing ESG risk – indeed, at the current rate of deforestation, all of the world’s forests could disappear in 100 years. Worryingly, investors indirectly, and often unknowingly, facilitate deforestation with investments supporting the capital stock of companies linked to land use change, such as commodity-linked deforestation and agriculture. Transparency and visibility over such issues is therefore key to enabling greater investor awareness and incentivising market change towards sustainable land usage.
“Despite the rapid increase in ESG retail products, investors will find it difficult to know what they are buying,” said Peter Elwin, Director of Fixed Income & Head of Land Use Programme at Planet Tracker. “The technology and data exist to allow investors to search for sustainable investments, yet too few investment portals have invested in the necessary upgrades. There is significant potential in terms of sustainable investment product design and the development of ESG selection tools. The benefits are clear for asset managers and retail investment websites willing to address this gap in the market.”
In light of the European Union’s (EU) Sustainable Finance Disclosure Regulation – which took effect from the 10 March – EU asset managers will be required to be more transparent with regard to ESG disclosure. This presents an unmissable opportunity for stakeholders to turn that transparency to their advantage and globally lead in this space, the report concludes..
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Notes for editors
ABOUT PLANET TRACKER
Planet Tracker is a non-profit financial think tank aligning capital markets with planetary limits. It was created to investigate the risk of market failure related to environmental limits. This investigation is primarily for the investor community where environmental limits, other than climate change, are often not aligned with investor capital. Planet Tracker generates breakthrough analytics to redefine how financial and environmental data interact with the aim of changing the practices of financial decision makers to help avoid both environmental and financial failure.
Find out more: www.planettracker.wm165.uk
FOOD AND LAND USE TRACKER
Food and Land Use Tracker combines science-based food system research, environmental metrics and public company financial analytics to reveal the systemic market and company consequences of failing to achieve sustainable and net zero deforestation-free food systems by 2030 and on to 2050. Planet Tracker’s research and engagements aim to catalyse change through pressure applied via investor policies and financial products which support the adoption of sustainable practices within global food systems. Food and Land Use Tracker is a part of the wider Planet Tracker group of Initiatives.
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