ETFs and mutual funds on investment websites fail to meet customers’ sustainability requirements, says Planet Tracker
Financial think tank, Planet Tracker, says that retail investment websites are failing to meet customers’ sustainability requirements, having published a review of 22 investment websites that found that not one provided retail investors with the means of excluding deforestation risk from their search.
Growing demand for sustainable or ESG investments has been matched by budding retail investor interest in funds that allocate capital to sustainable businesses that avoid funding environmental and social harms, Planet Tracker says.
“Yet, despite the rapid increase in ESG retail products, asset managers and retail investment websites are not keeping pace with the trend – missing out on the opportunity to provide investors with ESG investment choices that fully match their requirements and reflect their values.”
The report reveals the challenges that retail investors face in identifying sustainable/ESG investment products across a portfolio of investment websites and portals. “Despite some asset managers investing heavily in funds that allow their clients the ability to focus their capital on businesses that are actively reducing the harm they cause to the planet, they are failing to make these results visible to their potential investors due to a lack of adequate search and selection tools,” according to Planet Tracker. “In turn, the report highlights that although 78 per cent of mutual fund providers and 64 per cent of ETF providers surveyed offered ESG investments, the actual choice on offer was small. On average, ESG investments accounted for only 7 per cent of the investments available across the websites.
“What’s more, out of the 22 websites surveyed, over 70 per cent failed to provide an ESG filter for investors looking to narrow down their search results. Should a retail investor want to filter by specific ESG risk, findings reveal there are little to no provisions in place for such a task. For example, none of the websites surveyed allowed the potential investor to exclude deforestation risk.”
Planet Tracker writes that deforestation is a particularly pressing ESG risk. “At the current rate of deforestation, all of the world’s forests could disappear in 100 years. Worryingly, investors indirectly, and often unknowingly, facilitate deforestation with investments supporting the capital stock of companies linked to land use change, such as commodity-linked deforestation and agriculture.
“Transparency and visibility over such issues is therefore key to enabling greater investor awareness and incentivising market change towards sustainable land usage.”
“Despite the rapid increase in ESG retail products, investors will find it difficult to know what they are buying,” says Peter Elwin, Director of Fixed Income & Head of Land Use Programme at Planet Tracker.
“The technology and data exist to allow investors to search for sustainable investments, yet too few investment portals have invested in the necessary upgrades. There is significant potential in terms of sustainable investment product design and the development of ESG selection tools. The benefits are clear for asset managers and retail investment websites willing to address this gap in the market.”
In light of the European Union’s (EU) Sustainable Finance Disclosure Regulation – which took effect from the 10 March – EU asset managers will be required to be more transparent with regard to ESG disclosure. This presents an unmissable opportunity for stakeholders to turn that transparency to their advantage and globally lead in this space, the report concludes.