The rise of greenwashing: why consumers are sceptical of ethical investments

A person suffering

A wave of younger investors has caused a spike in demand for ethical investments. Around four in 10 young investors actively seek investments that will have a positive impact on the environment, and 83% of investors aged 18-34 consider at least some of their investments to be sustainable.

The number of first-time investors has grown rapidly since the pandemic hit. It seems that lockdown gave young people a break from spending and allowed them to amass considerable savings.

With the number of young, ethically-conscious investors on the rise, many assume that ethical investments are booming. However, new research from Triodos Bank has revealed that widespread scepticism around ethical investments exists amongst consumers.

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Scepticism of ethical investments is on the rise

In a press release earlier this month, researchers from Triodos Bank revealed that eight out of 10 consumers are calling on banks and financial institutions to deliver greater transparency around the ethical validity of green funds.

A quarter of those who currently choose not to invest in ethical funds question whether green investments are actually ethical. This figure has risen 17% since 2020.

Seven in 10 people who hold ethical investments have agreed that they would like there to be better informed about where their money is being invested once placed into a green fund.

The new generation of investors claims that being careful about where they invest their money is key to making a positive environmental impact. Of those asked, 67% believe that investors should take more time to consider whether their investments are actually helping the environment.

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Why consumers are so sceptical

Consumer scepticism around ethical investments comes after many green funds have failed to live up to their sustainable promises.

A report published in August revealed that more than 50% of climate-focused funds fail to meet the vision that was laid out in the Paris Agreement. More than 70% of the ESG funds did not meet global climate targets. This highlights the lack of standardisation that exists. 

Greenwashing

One issue that makes investors hesitant to trust sustainably-focused funds is greenwashing. Greenwashing is the act of falsely promoting a company or product as being environmentally sound. Many companies use greenwashing to attract the attention of sustainable investors because they know the demand for environmental action can work to their financial advantage.

In recent years, a number of large organisations have been called out for greenwashing. These organisations include Volkswagen, BP, ExxonMobil and fast fashion brand, H&M.

Investors worry that green funds are misleading. This has caused a surge in scepticism surrounding ethical investments and has encouraged more investors to take a deeper look into investment funds before putting any money into them.

How to know if an ethical investment is legit

To truly understand whether an ethical investment will actually make a positive impact on the environment, investors are choosing to take a closer look at the companies that various funds support.

One way of doing this is to choose a fund manager who will actively take sustainability and ESG into consideration when forming an investment strategy. Around 23% of new investors seek fund management that fulfils this. A further 19% of investors avoid supporting unethical companies by choosing managers that check their funds regularly. 

When considering the sustainability of an investment fund, ask yourself the following questions:

  • What companies does the fund support? When you find out, check the company’s carbon footprint, the diversity of their workforce and their ethical transparency.
  • How ethical is the fund’s investment strategy?
  • Does the fund regularly screen out unethical companies from the investment?
  • Does the fund offer regular reporting and information?

The post The rise of greenwashing: why consumers are sceptical of ethical investments appeared first on The Motley Fool UK.

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