Good Money Week 2023: investors back sustainable investments long term

• ii takes a look at customer portfolio exposure to sustainable investments* (from ii’s Sustainable Long List– including funds, trusts, and ETFs)
• Sustainable investment exposure continues to creep up over time, with women and younger investors with the most exposure consistently since 2020
• Older investors have the lowest exposure over the last three years (2020-23)

In line with Good Money Week this week, interactive investor, the UK’s second-largest investment platform for private investors, unveils new data showing that investors are not throwing in the towel on sustainable investments, despite recent underperformance. 

• Invest with ii: Sustainable Funds List | Top Investment Funds | Transfer an Investment Account

ii’s data today shows that actually, exposure has gradually been creeping up.

In 2023, so far (data to 31 Aug 2023), the overall portfolio exposure to sustainable investing stands at 2.44%, marking a steady climb from the previous years: 1.59% in 2020, 1.99% in 2021, and 2.17% in 2022.

The data is drawn from ii’s Sustainable Investments Long List*, which is not a rated list, but rather a rigorously researched universe of sustainable options available to investors on the ii investment platform, to make sustainable investing easier to navigate. Investors need to do their homework and should satisfy themselves that the selections suit their own values and risk profile.  

Not just a ‘fad’

Commenting on ii’s findings, Dzmitry Lipski, Head of Fund Research, interactive investor, said: “It is fascinating to see that ii customers are not necessarily being put off by shaky short-term returns for sustainable investments, and if they choose to, are continuing to align their money with their ethical/sustainable values. 

“This gradual increased exposure, particularly among women and the younger cohort on the platform, mirrors wider industry sentiment that sustainable investing is more than just a ‘fad’. Sustainable investing has the potential to offer investors exposure to companies with more resilient business practices, risk-adjusted returns, and those best placed to contribute to and benefit from a more sustainable future.

“Of course, we must address the elephant in the room – it is no secret that, in the short-term, sustainable funds have struggled in the recent harsh investment landscape. And the issue of potential greenwashing has made careful research all the more crucial. Energy security and mixed messaging on net-zero commitments may also have impacted investor confidence. 

“Nonetheless, the wider mainstream adoption of sustainable investing – or ESG integration - across investment strategies provides a positive long-term outlook for the sustainable universe. Sustainable investment/ESG matters are being increasingly embedded across both company practices and investment strategies, as growing evidence shows that companies more aligned to environmental, social and governance considerations can produce better risk-adjusted, sustainable returns.”

Increased investor confidence on sustainable investment products? Watch this space

Lipski adds: “There is still no industry-wide framework for sustainable investments, and this may impact consumer confidence that an investment will match expectations. In the absence of this, ii launched its own list - ACE 40. ‘ACE’ stands for Avoids, Considers, Embraces – words carefully chosen to explain what an investment is doing. We don’t have all the answers, and as we await more news from the regulator who has been looking at ESG product labelling in the last few years, it’s important to have an open mind. 

“The FCA’s Sustainable Disclosure Requirements and Labelling Regime is expected to be published late 2023, and provides an opportunity to further increase transparency and consumer trust in sustainable investing products. Tackling so-called ‘greenwashing’ will ensure that retail investors feel confident sustainable funds are doing what they say on the tin.”

Sustainable investment portfolio exposure on ii: breakdown by investment product

The gradual overall uptick in sustainable investment exposure on ii can be seen across all product categories, including ISA, JISA, SIPP, and Trading accounts. 

For instance, in 2020, exposure in SIPP's was 2.34%, which has now increased to 3.63% in 2023 - a 1.29% increase.

Sustainable investing – is there a difference between men and women’s exposure?

One ii’s noteworthy findings is that women have had more exposure to sustainable investments, year on year since 2020.

As of August 31 (2023) female investors on ii have 2.63% of their portfolios exposed to sustainable investments, while male investors’ exposure stood at 2.38%. 

Exposure to sustainable investing on ii(%)

Young investors lead the sustainable charge, but exposure among older investors is still growing

Additionally, age was another breakdown ii looked at. 

Younger investors, in the 25–34 age bracket boast the highest exposure to sustainable investments (this year, so far) at 3.16%. But the 35-44 and 45-54 age range are not far behind at 2.9%.

In contrast, older investor groups, aged 65 and above, exhibited lower levels of exposure - with an exposure of 1.99%. That said – this group’s exposure has still grown. 65+ investors had 1.42% exposure in 2020, and it is likely due to having larger direct equity exposure (because the ii Sustainable Investments Long List only covers collective investments).

Exposure to sustainable investing on ii (%) 

So, where is this exposure coming from? 

ii also looked at the most-bought funds and investment trusts on its platform, year-to-date.All from ii’s Sustainable Long List.

* ii’s Sustainable Long List – including funds, trusts, and ETFs

In compiling the 'ethical investments long list', interactive investor works with SRI Services, a specialist independent company devoted entirely to advancing retail Sustainable and Responsible Investment (SRI), using its Fund EcoMarket list. The list is based on a combination of whether the managers say they focus on ethical, social and/or environmental issues, the language they use and their responses to SRI Services. 

interactive investor is also informed by data provider Morningstar, which has identified investments that, by prospectus, either state that they use ESG criteria as a key part of their security-selection process or indicate that they pursue a sustainability-related theme or seek measurable positive impact alongside financial return.