What's holding Aussies back from green investing

Despite rising in prominence in recent years, a significant number of Australians remain unaware of, or downright confused by, the idea of sustainable investing and related investment products.

Less than a third of Australians said that they were aware of ESG (environmental, social and governance) or sustainable investing in the context of their superannuation or other investments, a new survey commissioned by Colonial First State has revealed.

Furthermore, only 6% of respondents admitted to truly understanding ESG investing, while just 9% were confident about the difference between an impact fund and a sustainable fund.

Guneet Rana, Colonial First State's director responsible investment, says that the lack of awareness unveiled by the research is a concern.

"Being informed about what sustainable investing is, the differences between products and how fees and performance compare to other funds is essential. Worryingly, our research found that 58% of Australians don't know how to compare different sustainable investment options."

Of course, not all investors will prioritise ESG when deciding where their money goes, but plenty of Australians do want their money to be invested responsibly. Unfortunately though, Rana says that many investors are being held back by this knowledge gap.

"Our research shows there is a significant education gap when it comes to sustainable investing, which is also preventing Australians from investing more sustainably.

"46% of Australians surveyed said they wanted to invest more sustainably but didn't know where to start. We believe there is an opportunity for both superannuation and investment funds and the financial advice industry to help close this gap."

The push for clearer labelling

One of the major issues in the sustainable investing space is the lack of consistency around key terms and investment product labelling - a problem that the federal government is hoping to rectify.

In a sustainable finance strategy paper released by Treasury last month, the government acknowledged that it can be difficult for investors to understand how investment products that are marketed as being 'green', 'sustainable' or 'ESG' are managed, and whether the label on the product actually matches up with what's in the tin.

The paper also noted that the lack of clarity currently available to consumers can help facilitate greenwashing, which can impact both the credibility and enthusiasm for sustainable investments.

Going forward, the government plans to consult with Treasury about a new labelling regime for investment products in the space with the view to introducing legislation on it sometime next year.

For Rana, the introduction of a consistent labelling regime across the industry would be a positive move for both investors and funds.

"At Colonial First State we believe the industry, regulators and government need to work together in the development of consistent consumer labelling standards to help consumers understand the underlying strategies being applied to sustainable investment options, and to make it easier to compare them.

"Consistent labelling standards and consistent use of terminology will also help superannuation and investment funds better manage the risks they face in determining the appropriate labels for a diverse range of products."

Six key ESG terms you need to know today

Becoming familiar with all the ins and outs of sustainable investing isn't going to happen overnight, but one way to start to get up to speed is with some of the key terms involved.

ESG

ESG stands for environmental, social and governance - factors which many individual investors and funds choose to consider when analysing a company.

Greenwashing

A practice in which an organisation misleads consumers by marketing one of their products or investments as being more environmentally friendly or ethical, for example, than it actually is.

Negative screening

A method which excludes (screens out) particular companies or sectors from a fund or someone's portfolio based on specific criteria. For example, ESG factors.

Positive screening

This is the opposite of negative screening where companies or sectors that perform particularly well on ESG criteria, for example, are included in a fund or portfolio.

Impact investing

Making investments that - on top of providing a financial return - have a measurable impact on environmental, social or another particular outcome.

Sustainable investing

Often used as a catch-all term for everything in the space, sustainable investing also refers to investments which specifically target goals such as lowering carbon emissions, creating more sustainable agriculture and preventing environmental destruction.

For even more definitions take a browse through our ESG glossary, or for a more comprehensive dive have a read through our guide on ESG investing.

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