Nearly two-thirds of private investors, 65%, considered ESG factors when choosing an investment, according to research from the Association of Investment Companies (AIC). But what ESG disclosure do these investors want to help them decide on an investment company?
They are very clear on the sort of ESG disclosure they don’t want. They don’t want an unclear explanation of the ESG strategy and generic information without accreditation or tangible benefits. And they don’t want ambiguity about the types of companies the fund excludes from its investment strategy. Just 25% of investors think the ESG reporting they’ve seen is satisfactory or mostly satisfactory. The older investors are more forgiving with 47% believing the ESG reporting is satisfactory or mostly satisfactory compared to 14% of the more critical under 45s.
Investors particularly dislike long and general statements. A male investor aged 62 explains he hates: “Bland overall statements as these don’t provide confidence that they are really impacting change.” Whereas this female investor aged 32 wants specific examples: “I think they all tout ESG and stop at that. There are no specific stories of their impact or measurable and tangible results of saving a forest, lake or any animal welfare.” This male 56-year-old explains his concern: “Focus on compliance to global programmes and statements like this become generic and just compliance with no link to action or investments.”
Investors have clear views on what they want from ESG reporting. They want an upfront well-defined statement of ESG purpose. This should be easy to find and preferably near the beginning or front of any report or factsheet. Investors want ESG reporting to be short, succinct and punchy. As this male investor in his 20s explained: “It shouldn’t be pages and pages of information, it should just be very high level, and I guess, I don’t know how it would work but in terms of being audited, so you know that the claims are legitimate.” Investors also want ESG information to be quickly and easily comparable between funds.
Tangible examples and case studies to highlight any impact or positive change bring ESG investing to life for investors. “They could give a few case studies of how much money has gone where and how it’s actually achieved something,” is how this investor in her 30s described it. The ESG impact needs to be quantified, as supported by this male investor aged 64: “I think it would be good to have a view of, in terms of the fund, what positive impact it might have had – ‘we’ve planted x trees, housed x homeless people’ something like that, it should form part of an annual update they give you when you get your performance review.”
When it comes to where investors want to find ESG fund information, there are some easy wins for investment companies. Factsheets were by far the most popular place for ESG information, with 68% of investors wanting ESG information here. Looking at several investment company factsheets, it’s clear ESG information is often missing. Half of investors expect to find ESG information in annual half-yearly reports and many investment companies are indeed providing helpful ESG information in their reports. Nearly half would expect to find ESG disclosure on the fund manager’s website and nearly a quarter of investors would like ESG information on the AIC site – which is now available.
Last year the AIC invited members to disclose their ESG policies on the site. We now have disclosures for 76% of member companies by assets on the site. This is an important first step but the next stage is to be to deliver best practice guidance on ESG disclosure for our members. Clearly, the sooner the Financial Conduct Authority makes progress with its new disclosure and fund labelling regime the better. We’d like to help investors search for investment companies by ESG criteria but without clear definitions and labelling it’s not an easy task.
What’s clear is that when it comes to ESG disclosure, investors can spot when the ‘green’ wool is being pulled over their eyes. They have a strong idea of what is good disclosure and they want to see ESG information on factsheets. The investment company industry needs to step up to the challenge and produce ESG disclosures that stand up to scrutiny and deliver what investors want.
