Vague wording and jargon remain among the biggest barriers to investing in sustainable funds, despite increased appetite for sustainability among advisers and retail investors.
A survey conducted by the Investment Association and The Wisdom Council found that 52% of retail investors are aware of the FCA’s new SDR labelling regime, with 94% saying they find the labels to be helpful.
The research took in responses from 1081 UK retail investors, and 261 financial advisers who have clients invested in ESG, ethical or responsible funds.
Meanwhile, 86% of advisers are confident that they understand the labels enough to choose funds appropriate for clients interested in sustainable investing.
Among advisers expecting to use labels, 35% anticipated using Sustainability Mixed Goals the most when selecting funds for clients, followed by Sustainability Impact (29%). At just 16%, Sustainability Focus was expected to be used the least by advisers.
High appetite among advisers
A high appetite for sustainable investing in general was found among advisers, with 48% of those surveyed saying they are ‘always’ speaking to clients about sustainability.
Some 92% reported an increased desire for sustainable investment from their clients, though the final decision on whether to invest comes down to returns with just 8%.
However, for around half of investors, vague words, jargon and a lack of detail on fund documentation create barriers to investing in funds.
The research found that technical language requires further explanation for retail investors, with just 17% having heard of ‘Positive Tilt’ and 15% understanding ‘Paris-aligned’.
Younger investors are more aware of the new SDR labels, with 63% of Gen Z and Millennial investors aware of the regime, compared to 34% of Gen X and 26% of Baby Boomers.
“As awareness of SDR builds, we are seeing a real appetite for clearly articulated content on how funds aim to drive change through their sustainability approaches – whether or not they have adopted a label,” said Dawn Hyams, head of investor governance at The Wisdom Council.
“Our research tells us that investors and their advisers are much more likely to engage with those firms that can bring fund strategies to life in an authentic and meaningful way, using simple language and case studies. Effective education and support will be key to making a success of the regime.”
Miranda Seath, director of market insights at the IA, added that the implementation of SDR labels are only a starting point.
“Investors want to understand from fund managers how their money will be invested and to what end before selecting a sustainable fund and ideally want to see real-life examples of how the funds make a difference.
“Vague words, jargon and a lack of detail create barriers to understanding. Clear and accessible language is central to giving investors confidence in their decision-making – and this must remain front of mind for fund managers, advisers and regulators as label uptake increases.”
