Investors grow wary of greenwashing and demand third-party verification

Industry watchdog The Financial Conduct Authority (FCA) has written to banks that lend to UK companies to warn them about “greenwashing” and “conflicts of interest” in the sustainable loans market.

“Responsible” investments appear to be losing favour with private investors. A survey has found that only 53 per cent of respondents consider environmental, social and governance factors before investing, compared with 60 per cent last year and 65 per cent in 2021.

The results of the ESG attitudes tracker survey by the Association of Investment Companies comes after news last week that so-called responsible investments, or greener funds, experienced record net outflows of £448 million in August.

Although 68 per cent of respondents said sustainability was important to their everyday lives, they showed concern that funds were “greenwashing”, or overselling sustainable practices for marketing purposes. Nearly two thirds, 63 per cent, were not convinced by funds’ ESG claims, up from 58 per cent last year and 48 per cent in 2021.

Richard Stone, chief executive of the association, said: “Our attitudes tracker suggests 2021 may have been a high point for enthusiasm about ESG investing. There is plenty of residual support for the concept, but concerns about greenwashing are increasingly dominating private investors’ mindsets.”

To address greenwashing, respondents suggested greater transparency, industry regulation and standardised verification by reputable third parties.

“These findings underline the importance of the regulator getting disclosure rules right, in particular the new labelling regime,” Stone said. “A new regime with high standards that investors can rely on is essential for helping investors who care about ESG to find products that align with their values and beliefs.”

Fifty-six per cent of respondents who did not consider ESG factors when investing said they prioritised performance over ESG issues. A further 17 per cent said they never really thought about ESG.

Investors also held a poorer perception of ESG investments’ performance and risk compared with two years ago. Only 22 per cent thought ESG investingwas likely to improve performance, compared with 33 per cent in 2021, and 24 per cent thought ESG investing could worsen performance.

The total of responsible investment funds under management stood at £96 billion at the end of August, with a 6.9 per cent share of industry funds under management.

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Investors grow wary of greenwashing and demand third-party verification