Is ESG investing truly sustainable or more opportunistic? 

Posted in Sustainability on 27 April 2021
By Molly McKinnel, Analyst

Socially-conscious investing is at risk of becoming greenwashed as companies look to attract ethical money, but consumer pressure can help encourage better practice.

As the impacts of climate change continue, and revelations about companies cutting environmental corners continue to make the headlines, there’s plenty to be concerned about. But it’s encouraging to see an increasing number of people, particularly younger generations, opting to invest their money more responsibly, whether shopping at sustainable clothing retailers, buying from B-Corp labels or investing in companies that aim to make the world better.

Environmental, Social and Governance (ESG) matters are one of the most talked about topics in the investment space, spearheaded in part by new generations of investors looking to align their money with their values. A 2019 Morgan Stanley survey of high net worth investors found that 95% of millennials were interested in sustainable investing, and that interest in sustainable investing among the general population of investors jumped from 71% in 2015 to 85% in 2019.

But as with any trend, and especially one where there is so much to gain (an estimated $4tn is expected to be passed down within a generation to millennials and Gen Z in Canada, the UK and US), there are many individuals and institutions looking to capitalise. Which begs the question: are these ESG funds always as sustainable as they appear?

The most striking thing about the various fintech apps targeting young investors is their design. Clearly aimed at attracting a younger audience, they are incredibly simple to use, often with a playful tone and have some form of gamification. Their social media accounts are filled with memes and appealing infographics and animations with aesthetically pleasing colour palettes. The collapse of Football Index, and recent focus on firms like RobinHood after the GameStop stock controversy, show many companies often tread a fine line in this area. 

There is also an attempt to attract users with colourful, patterned or metal debit cards, creating a premium feel to tap into the Instagram generation of performative wealth. Monzo’s Premium account launch was accompanied by a press release that introduced its metal card and its aesthetics – for example, how it makes a ‘satisfying “clink” noise when it taps another hard surface’. 

Some investment firms have advertised ‘green’ funds that are merely exclusionary, such as avoiding companies involved in animal testing, weaponry, pornography and gambling services, rather than actively promoting greener companies. While this is a start, simply not investing in notorious sectors arguably does not qualify a fund as particularly sustainable. 

But some companies are responding to criticism in this area. One example, Plum, an AI savings platform, recently excluded a fast fashion brand from its ‘Clean and Green’ fund after gathering feedback from users.

Clearly then, the importance of customer choice cannot be overstated and consumer influence is a key driver for investment. Though it’s important for cynicism not to stand in the way of enabling positive change, it’s also vital that consumers take responsibility and make the effort to dig into the small print – and call out greenwashing. 

Refusing to be drawn in by the bright colours, interactivity and compelling marketing messages to make more informed, conscious decisions will ultimately force corporations to be accountable and put greater effort into improving their offering. Ultimately, the fact that there has been a huge shift in investor behaviour has got to be a good thing – consumer demand will (and has) influenced behaviour at the top, and it’s greatly encouraging to see the next generation of investors flocking to finance a more sustainable world.

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