"Given the rise in the use of model portfolios, this gives advisers another good opportunity to review their practices around sustainable investment.
“The FCA has also finalised its anti-greenwashing rule, putting in place clear guidelines for how asset and wealth managers should communicate the ESG credentials of their portfolios.”
She adds this is a clear extension of developments such as the consumer duty, where the FCA is putting a high bar on customer understanding.
Woodward explains: "It is likely the FCA will police this effectively in the early days to ensure compliance is high and as such providers will need to review and update their marketing if they have not already done so.”
According to David Harrison, fund manager at Rathbone Greenbank Global Sustainability Fund, the factors investors care most about when investing in sustainable funds are:
- having a clear and consistent sustainability framework, so they understand where to invest;
- transparency, for example giving investors more information about why investments are held in certain companies;
- exposure to long-term sustainability trends in a coherent fashion, with investment in financially strong businesses; and
- risk-adjusted performance as with any other investment also remains important.
A recent report by Boring Money echoes Harrison’s views that, even with the SDR labels, investors still want more clarity on what the funds do and their objectives.
The SDR and investment labels regime for investment products includes a substantial package of measures aimed at improving the transparency of sustainable investment products and minimising greenwashing.
Among them are the four consumer-focused sustainability labels: sustainability focus, sustainability improvers, sustainability impact and sustainability mixed goals.
The study by Boring Money found that even once the labels are explained with consumers, one-quarter of all cash savers and investors said they 'didn't know' when asked which label best aligned with what they would be looking for from a sustainable fund.
Among the more confident, savvy investors, those saying 'don’t know' was still as high as 20 per cent.
Of all the four labels, the least popular with investors is the sustainability improvers label.
Holly Mackay, chief executive of Boring Money, says: ”We know that environmental factors resonate with consumers, and yet expectations here have historically been misaligned with what the industry is actually delivering.
“Over the past two years we have seen slow growth in the understanding of transition, and how you can argue that there is room for an oil company in a sustainable portfolio.
“Despite improved understanding, we can see that the improvers label alone is a bit of damp squib.
"Firms will need to understand their target audience, and work hard to improve confidence and understanding here, more so than with other labels which are more immediately palatable to investors.”
When investigating the consumers' attitudes toward what they now perceive to constitute as sustainable investing, the research found an increase in the number of investors who agreed with the following statement: “It's okay for sustainable investments to invest in oil companies as part of a strategy to combat climate change”.
