More than half of all retail investors who have placed money in so-called impact investment products, such as green bonds, expect to increase their share of the sector in the next two years, a survey by the Rockefeller Foundation and Longitude Group shows.
Meanwhile, some 55 per cent of the 200 investors who were polled think that pursuing social impact helps boost returns rather than sacrificing financial performance, as was traditionally presumed. However, there is widespread confusion over which impact products are “genuine”, the survey warned.
“The next frontier for impact investing lies with mass affluent retail investors, who are projected to have some $100tn in investing power globally by 2020,” said Saadia Madsbjerg, managing director at The Rockefeller Foundation. “There is a clear need to develop innovative, scalable products.”
The Rockefeller-Longitude poll is one of two surveys whose results are likely to be closely watched by the financial industry since they come at a time when many financial groups are scrambling to offer a range of environment, social and governance (ESG) products to their clients, sparking a surge in the issuance of green bonds and other ESG-linked securities and exchange traded funds.
The second survey, by UBS, which polled 600 institutional investors, found that 78 per cent incorporate environment, social and governance factors into their daily investment decisions. Even in America — which has been slower than Europe to adopt ESG — some seven out of 10 said they embraced the concept, and only 11 per cent rejected it.
Less than one-third of asset owners in the UBS survey reported that they were able to measure how their investments performed on a “non-financial” basis, due to a lack of consensus about how to track non-financial returns.
The Global Sustainable Investment Alliance estimated that the total size of all investments that are being run according to an ESG mandate was $31tn globally in 2018, up from $23tn in 2016. However, JPMorgan has recently estimated that only about $3tn of that investment meets rigorous ESG standards.
The even more narrowly defined sector of “impact investing” — or financial products that are designed to deliver positive change in ESG issues, rather than avoiding harm — is estimated to be about $502bn in size, according to the Global Impact Investing Network’s latest estimate.
That total is widely expected to rise sharply in the coming years, since there is rising demand, particularly from millennials. However, industry groups warn there is still a paucity of green bonds, ESG friendly funds and other impact products to meet the demand.
“The financial services industry has not caught up with the desire among retail investors to put their investments to work to have a positive impact on the world,” says Amit Bouri, chief executive of the GIIN.
Industry groups are now seeking tools to provide more transparency. The GIIN, for example, announced a tool this month called IRIS+ designed to provide investors with data on companies on themes such as water conservation or gender pay equity.
Separately, groups such as the International Integrated Reporting Council, a London-based non-profit, are pushing for an overhaul to corporate reporting standards, to force companies to disclose material information that better reflects their “commercial, social and environmental context” alongside financial data.
However, the multitude of initiatives risks creating further confusion, and financial analysts warn that it could take long time before the labelling and transparency of green securities meets investor demand.
Source Financial Times