Consumer trust isn’t something to be taken for granted, but reports from the UK, US and here at home are all pointing towards an uplift in trust levels around financial advice, which can only be a welcome development.
There are significant tailwinds behind the financial advice industry at the moment, but some major obstacles are still preventing advice practices from taking advantage of surging demand according to a new study from CFS.
‘Pivotal moment’ as greenwashing overtakes returns as key ESG concern
For stakeholders in the responsible investment sector, there’s good news and bad news.
Returns for responsible investment products have never been better, which has contributed to a marked decrease in the percentage of investors that worry about performance according to new research from the Responsible Investment Association Australasia (RIAA).
The good news is worthy of highlighting for providers of responsible investment products; the hurdle they’ve always needed clients to overcome has been the perception that products forged around ethical, social and governance pillars will tend to underperform the market.
Broadly, this narrative has been a false one for several years now. Not only do ESG-themed investments benefit from lower risk due to the standards they uphold, but the investments they tend to make – things like energy transition, biotech and information technology – have become incrementally further entrenched in the mainstream and more reliable generators of alpha.
As part of this growth, RIAA says, specific verticals within responsible investment are emerging as leading investment areas.
“Clean energy remains a leading impact theme, attracting 53 per cent more funding than climate change mitigation,” RIAA says. “Together, clean energy and climate change mitigation account for $5.13 billion in AUM, representing 71 per cent of the total AUM for impact investment products/funds, such as financial inclusion, quality jobs, and access to quality healthcare.”
Products certified by RIAA returned 13.20 per cent in the last ten years, the association reports, a significant premium over the 9.19 per cent average of other Australian equity funds.
As a consequence of this outperformance, investors worry less that their ESG investments will lag the benchmark. RIAA says concerns about performance have dropped from 52 per cent to 45 per cent in the last year.
The greenwashing problem
Amidst this uptick in investment returns and consumer confidence, however, the sector is coming to grips with increasing concern about greenwashing, which has now become the major deterrent for investors – up from 45 per cent in 2022 to 52 per cent in the latest RIAA benchmark report.
According to RIAA co-CEO Estelle Parker (pictured), the rise in concern about greenwashing is a “pivotal” moment for the industry.
“Our data shows that 99 per cent of respondents now integrate ESG principles into their framework, embedding responsible practices into the fabric of their operations,” Parker says. “Concurrently, regulators are rightfully pushing for greater transparency, and the public wants proof that investment claims lead to real-world impact. Credibility in responsible investment depends on demonstrating measurable, impactful action, not just good intentions.”
Transparency will become a crucial element in the responsible investing sector’s efforts to win back the trust of investors, she adds, noting that a record 60 per cent of fund managers now disclose full portfolio holdings, which is a ten per cent increase on last year.
