Client conversations focusing on returns detriment need to change but the industry must also be honest about what sustainable investments can achieve, the UKSIF Good Money Week conference has heard.
Kate Elliot, head of ethical, sustainable and impact research at Greenbank, told delegates there was no real detriment to returns in sustainable strategies when investing in the long-term.
This was evidenced in several pieces of academic research, yet many client conversations still focused on just that.
When it comes to short term investing the picture looks a little less consistent however, and while the same can be said for most investments, the sustainability filter could be adding an extra layer of complexity, she said.
Elliot said: “There needs to be an honest conversation with clients about what is achievable.
“So if a client, for example, has indicated that they would like to avoid essentially 90 per cent of the market, but with an incredibly low risk portfolio, short-term time horizon, that may not be possible.
“And then it's about having that honest conversation to say, kind of, yes, this is what you are aiming for, this is what we believe as a firm we currently offer.
“And then they can make a choice and it's importantly an informed choice about whether that is suitable for them or, actually, are investments the right thing for them.”
Over the long term, when considering sustainable strategies versus conventional ones, she said it was a case of "same destination, different journey that you see."
Good match
Due to the long term nature of sustainable strategies pensions can be a good fit. And the impact can be huge.
Yet, speakers at the conference agreed, pension money is often what gets moved into sustainable strategies last, instead remaining in default funds, especially in workplace schemes.
Nick Stoop, founder of sustainable focused DFM Pangea Impact Investments, who spoke at the conference on a panel with Castlefield's Helen Tandy, said research showed utilising pension funds could have a massive impact on CO2 reduction, for instance.
Referencing previous research from the Make My Money Matter campaign, he said: “It turns out that if you are in one of those defaults pension solutions, and you have the average amount of investments in your pension, which happens to be about £30,000 today, then that was creating an additional 26,000 kilograms of emissions.
“And…if you were to move to a sustainable pension, then it was estimated that around about 19,000 of those 26,000 kilograms of carbon emissions each year would be reduced.”
By comparison, his switching from using a car to using trains had saved about 780 kilograms of carbon emissions over 6,300 miles.
This was a big difference, he said, adding “there's so much more work that needs to be done there in terms of the sharing and educating the public more broadly.”
Stoop and Tandy agreed better education of advisers and consumers was needed to entice more investors to consider switching their long term investments to sustainable assets and to give advisers the confidence to broach the topic without fear of inadvertently engaging in greenwashing.
