Two-fifths of investors already see UN climate change report as wake-up call

Ahead of COP26 summit, our poll sheds light on investor attitudes in the wake of the landmark report.

Ahead of next month’s COP26 in Glasgow, the potential implications of the climate emergency are already starting to sink in for many investors from a portfolio selection perspective. This follows the stark warning on climate change outlined in the recent landmark UN report on the topic, with green solutions creeping up the agenda for many investors.

In a poll of 1,617 interactive investor website visitors between 17 and 23 August 2021, just under two-fifths (39%) of respondents said they were more likely to invest in ‘green’ investments as a result of the UN’s Intergovernmental Panel on Climate Change (IPCC)report published last month. But as many of the sample said the opposite. The remaining 22% said they ‘don’t know’.

The IPCC report warns that global warming is dangerously close to spiralling out of control, but while some changes to global climate are now locked in, rapid action to cut greenhouse gas emissions could limit some impacts. Investors might not realise it, but it can also come down to how they invest, and there is an increasing number of ‘green’ investments available to build an environmentally conscious portfolio.

Dzmitry Lipski, Head of Fund Research, interactive investor, says: “Climate change presents real risks and opportunities for all investors and cannot be ignored or offset. Investment decisions taken today will have a major influence on global climate in the future.

“Efforts by the UK government to achieve net-zero carbon by the middle of this century are inherently going to result in a significant change in investors’ behaviour, at the expense of fossil fuel options and favouring more low-carbon energy and other ‘green’ alternatives. But there are a number of challenges when it comes to ‘greening’ your portfolio such as the variety and complexities of ESG funds, potential greenwashing and lack of opportunities outside developed countries.”

Greenwashing

On greenwashing, Kyle Caldwell, Collectives Specialist, interactive investor, says: “When we talk about greenwashing in asset management, we mean the term coined to describe fund firms pushing themselves or their funds as ‘green’ through marketing, rather than fully integrating ESG (environmental, social and governance factors) into their investment processes.

“It is a worrying trend, but there are some safety checks investors can apply to find funds that are managed in a genuinely ethical manner.  One tactic is to assess the fund manager’s heritage in the ESG sector, as well as the fund management group’s overall knowledge and experience. Resource also fits into this; if a fund firm employs a large team of ESG fund managers and analysts, this arguably shows a healthy level of commitment towards sustainable investing.

“Another factor to consider is the level of emphasis the fund management firm places on ESG. If only a small number of its funds have an ESG focus, and have been launched over the past couple of years, this certainly raises question marks.”

Myron Jobson, Personal Finance Campaigner, interactive investor, says: “What constitutes as ‘green’ is intrinsically subjective. For some, avoiding traditional ‘sin stocks’ such as oil from your investment universe is enough. For others, that won’t even touch the sides.

“There is also growing pressure on listed companies to consider environmental factors, and this has been a key theme this year when it comes to AGM votes, with climate policies a firm feature. Some might argue that shareholders in these companies can act as a force for good, given the greater scrutiny of environmental factors at AGM votes, but that approach won’t sit well with people with a strict green agenda.

“Don’t take all investments labelled green at face value. For investors looking to green their portfolio, there is no substitute for doing the legwork themselves. This means looking under the bonnet of every product purporting green credentials to ensure compatibility. Even those who don’t have a fervent passion for sustainable investing can bear in mind there is now greater regulatory scrutiny on environmental, social and corporate governance reporting.”

interactive investor publishes a long list of more than 140 ESG funds, investment trusts and ETFs available on the platform broken down into three interactive investor ACE investment styles: Avoids, Considers and Embraces, to help match ethical investors with solutions that align to their morals. Truly green objectives are likely to be found in the ‘embraces’ category.

ii also maintain ACE 40, a list of ethical funds we rate. For those yet to get started on their investing journey, ii also recommends a range of sustainable ‘Quick Start’ funds for beginner investors. The BMO Sustainable Universal MAP range offers Cautious, Balanced and Growth options for different risk appetites.”