Greenwashing is top of the worry list for investors when it comes to responsible investing, with 44% concerned that ESG investments were not what they claimed to be, according to research conducted by Quilter.
This was closely followed by investors having concerns around these investments having higher fees and costs (42%) and if they will perform better than more traditional portfolios (38%).
Investors have become increasingly sensitive towards the effects of greenwashing, where companies exaggerate their green credentials to capitalise on growing demand for environmental products, as concerns around climate change have increased, Quilter said.
Greenwashing threatens to undo all the good work and progress that has been made so far in responsible investing."
The Treasury Select Committee group of MPs recently argued the Financial Conduct Authority should be handed powers to tackle greenwashing as part of an effort to cut carbon emissions.
Quilter's research also found investors fit broadly into four categories:
- 33% of investors are ‘ESG aware', where they know what responsible investment means but are not actively allocating to investments of this type now
- 42% are ‘ESG focussed', where they know what responsible investment means and will include investments of this type as part of their portfolio
- 11% are ‘ESG dedicated', where they are fully aware of what responsible investment means and investments of this type need to be or already are a major element of their portfolio
- 14% are currently not interested in responsible investment as part of their portfolio
The data also revealed that over half of investors (56%) are likely to consider responsible investing either more than they do now or will start to at some point in the future, highlighting the sustained demand for these types of investments.
Eimear Toomey, head of responsible investment at Quilter Investors, said: "The explosion in popularity of ESG investments has been well documented, but it is encouraging to see investors are not simply seeing it as a fad and want to make a real difference. These investors want companies to act in a more responsible way and it is clear that words will not be enough to placate them.
"Greenwashing threatens to undo all the good work and progress that has been made so far in responsible investing. It is crucial that fund groups invest in the way that they say they will, so it is important investors hold them to account on this.
Toomey added: "Research is showing increasing demand for responsible investments and investors are clearly adapting their investment philosophies to get the most out of their portfolio, both for themselves and others. Demand is not going away anytime soon, and we are going to continue to see a proliferation in ESG investments, and as such it is vital investors do their homework and understand what it is they are investing in.
"Doing the research and finding out how your managers are investing responsibly, what they are holding and how this could make a difference will allow you to make an informed decision and give you the confidence to invest in a responsible manner."