Only 29 per cent of Australian consumers are aware of ESG or sustainable investing and just 6 per cent are sure that they understand the concept, new research has revealed.
The research, which involved 1,496 Australians and was commissioned by Colonial First State (CFS), found that 48 per cent believe ESG or sustainability investment claims are confusing and 58 per cent do not know how to compare different ESG options.
Just 9 per cent of the respondents indicated that they are confident in their understanding of the differences between a “sustainable fund” and an “impact fund”.
Furthermore, respondents had low levels of understanding about common industry terms, including 50 per cent who do not understand what “net zero” means and 43 per cent who do understand the meaning of “carbon offset”.
“These findings highlight the need for industry, regulators and government to continue to work together in the development of consistent consumer labelling standards that can support consumers making more informed decisions and also provide a reasonable basis for superannuation and investment funds to label products,” CFS said.
CFS said that it was pleased that the federal government’s sustainable finance strategy has recognised the need to improve sustainability labelling for investment products.
Developing a labelling system for investment products marketed as sustainable was identified as one of the government’s policy priorities under the “key pillar” of improving transparency on climate and sustainability.
“The market for sustainable investment products is expanding. An estimated $1.3 trillion worth of financial assets in Australia are managed using a ‘responsible’ investment approach,” the government said in its sustainable finance strategy consultation paper.
“However, a wide range of investment approaches are marketed as ‘sustainable’ or similar, and it can be difficult for investors to understand how these investments are managed or to verify their sustainability characteristics.”
CFS confirmed that it will engage with the government’s consultation to support the objective of the sustainable finance strategy. The firm noted that it recently published a responsible investing glossary to help investors understand common terminology.
Earlier this month, the CFA Institute, the Global Sustainable Investment Alliance (GSIA), and Principles for Responsible Investment (PRI) joined forces to launch guidance regarding the terms used in responsible investing.
The guidance is targeted at investors, regulators, policymakers, and other market participants and aims to create greater consistency and understanding and potentially help reduce greenwashing.
Within the guidance, the CFA Institute, GSIA, and PRI have provided harmonised definitions for five responsible investment terms: screening, ESG integration, thematic investing, stewardship, and impact investing.
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.