UK green funds attract record retail inflows

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UK retail investors have been investing money in responsible funds faster this year, despite the country’s financial regulator warning that inconsistent standards could make buyers unsure what is behind ethical labels.

According to the Investment Association, wealth managers had $ 4.3 billion in the three months to the end of September. Flows accounted for a third of total retail sales in the industry for the quarter.

But the green gold mine brings with it concerns that some funds do not live up to their responsible branding.

In early November, the Financial Conduct Authority launched a process to clean up the labeling and disclosure of sustainable investment products – warning that more coherence is needed so that consumers can make informed decisions.

“We previously pointed out the danger of being misled. . . Claims from products and providers, ”said the FCA. “Without common standards, clear terminology and accessible product classification and labeling, there is a risk that consumers will have difficulties finding their way around the product landscape and assessing product suitability.”

A recent survey by the Association of Investment Companies found that two-thirds of self-directed investors consider environmental, social and governance factors before putting their money into action, with climate change being the number one concern of theirs.

The investment industry’s drive to respond to this demand with green products and marketing has exacerbated the question of the best way for asset managers to pursue environmental goals. Some asset managers prefer to own oil stocks and use their role as shareholders to, for example, push boards of directors to change, while others prefer to avoid these stocks altogether. At the same time, experts are also debating the climate footprint of various technologies and energy sources.

The many different approaches to climate-friendly investing can make it difficult for retail investors and their advisors to find products that match their values, according to analysts.

Responsible Fund line chart resists volatility in total fund sales and shows steady retail inflows into responsible mutual funds

In their rush to go green, some fund managers have made proposals that the FCA says are “poorly worded” and “contain claims that will not stand up to scrutiny”.

The fund industry has recognized the need for clear communication and welcomes the FCA’s move towards standardized labels.

“Today’s savers want the assurance that a responsible and sustainable investment product will meet their expectations,” said Galina Dimitrova, director of investments and capital markets at the Investment Association.

“We recognize the need for clearer and more consistent disclosure,” she said.

The FCA called for “first views” on disclosure and labeling with the aim of discussing new regulations by mid-2022. Meanwhile, savers have continued to invest billions of pounds in ESG-like assets every month.

Responsible Funds Bar Chart as a percentage of total industry wealth showing that Responsible Funds represent an increasing share of UK fund managers' wealth

Hargreaves Lansdown, the UK’s largest investment platform, said net inflows into responsible funds for the first nine months of this year were 6,000 percent higher than the same period five years ago.

The proportion of assets held in responsible funds has grown steadily, reaching 5.5 percent among all UK fund managers, according to data from the IA, which includes both sustainability-focused funds and those based on broader ESG or impact investing criteria .

Selling responsible funds to retail investors has accelerated since the Covid-19 crisis and has proven largely immune to ups and downs in overall industry sales. Responsible fund sales rose to £ 1.6 billion in September as total industry revenue fell nearly in half.

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