An in-depth study by The Wisdom Council, the financial services consumer insight and engagement specialists, on investor attitudes and behaviours towards responsible investing shows that while 78% of consumers who are contributing to a pension feel a personal responsibility to combat environmental challenges, almost 60% didn’t realise that they can make a difference through their long-term saving and investments.
- 78% think it’s important that they as individuals play a role in protecting the environment;
- 81% think that every company should be as environmentally responsible as they can be;
- …but 52% don’t believe the investment industry can make a difference to tackling climate change;
- …and 58% are unaware they can invest in a way that contributes to tackling environmental challenges;
- the investment industry is viewed as one of the least likely to be able to operate sustainably – only mining, aviation and fossil fuels were perceived worse.
The study, which included a survey of over 2,000 consumers, found that there has been no increase in UK consumers feeling more sustainable in the way they manage their finances or investments from three years ago. This reinforces the finding from its 2017 study that investment providers need to re-think their approach to engaging with investors and communicating the relevance of investing responsibly.
Josh Blundell, Head of Research at The Wisdom Council says: “When someone looks for ways to be more sustainable in their lifestyle, they think about recycling or they think about reducing plastic or choosing a green energy supplier – they are not thinking about where their pension or ISA is invested and where they could arguably have a bigger impact. There is a real lack of awareness and knowledge on the role that the industry can play in responding to the big environmental and social challenges that we know are part of our daily lives.”
THE RETAIL INVESTOR IS BEING LEFT BEHIND
However, the study found that when consumers are made aware of opportunities to invest their money responsibly, demand is strong. Two-thirds of consumers think that some or all of their pension should be invested using responsible principles, but there is little distinction in appetite for different approaches – the research looked at exclusions, engagement, ESG integration and sustainable themes. Instead, the message coming from consumers is that the industry should get on and implement responsible investment on their behalf.
Josh says: “The implication is that ESG considerations should be a core part of the process for any default pension fund or retail investment product – it’s a hygiene. While institutional money continues to flow into ESG approaches, the same should be applied to all retail investment products – being a responsible company (and investor) is now a hygiene expectation among UK consumers not something you can do on the side”.
That doesn’t mean increasing fees or sacrificing returns, 63% still expect firms to focus on their core role of delivering investment performance
FIRMS NEED TO UNDERSTAND THE TARGET MARKET AND BETTER TAILOR COMMUNICATIONS
using its data, The Wisdom Council conducted extensive cluster analysis and identified six types of investors when it comes to attitudes and behaviours around sustainability and responsible investment. The research points to untapped latent demand for responsible investing (double the number of investors want to learn more about responsible investment than in 2017) but only around 9% are actively engaged today which tends to be older, wealthier clients.
The study found that 45% of consumers would be willing to actively engage in a conversation on responsible investment – if the communication is delivered more successfully – while 43% would be interested at only a more passive level. There remains 13% who show no interest in responsible investing at all.
Josh adds: “Responsible Investment is fast becoming the central battleground for wealth and asset management companies seeking to distinguish themselves in a saturated market. Our research highlights that the messages the industry is putting out are not landing. It is becoming a hygiene expectation much faster than we might have imagined.”
“The industry as a whole, needs to move quickly to communicate their role more effectively and demonstrate real change if they are to engage the next generation of investors and deliver for this one”.
The Wisdom Council’s 2020 Responsible Investment project was designed to ensure that the partner firms involved (and indeed the wider industry) move forward with a clear understanding of the needs and expectations of our end consumers, whether invested through a pensions scheme, financial adviser or on a self-directed basis.
Leon Kamhi, Head of Responsibility, at the international business of Federated Hermes said: “The climate crisis and covid-19 have undoubtably heightened the focus on sustainability. We have seen a seismic shift with investors now reassessing their long-term aims and outcomes of their investments, proven by the outcome of this study. Having long advocated putting investors’ holistic interests first through responsible investment and credible investor stewardship, we hope this momentum continues, and leads to the investment industry fully and transparently playing its role through properly ESG integrated investment alongside effective engagement to deliver sustainable outcomes for investors and society.”
Emma Renals, Chief Operating Officer at Rathbone Unit Trust Management said: “As we expand our product range, The Wisdom Council’s research will be invaluable in informing our communications and educative initiatives, so that we can have real conversations with investors about responsible investment. This topic has rightly gained momentum in recent years, but there’s clearly much still to do.”
Sam Turner, Head of Responsible Investment at St. James’s Place, said: “This research reinforces our belief that our clients care deeply about sustainability. However, we need to do more as an industry to breakdown the jargon and demonstrate the vital role your savings and investment have on bringing about positive change.”
“For us, it’s important that all our fund managers include responsible investing considerations into their decision making. This research clearly points out that clients expect us to be using their money as a force for good, whilst helping them achieve their financial goals.”
For its wide-reaching research programme, The Wisdom Council (TWC) analysed millions of conversations on social media, carried out interviews with investors and financial advisers, and surveyed more than 2,000 UK consumers, all of whom either had a workplace or private pension.