Investors with $27tn jittery over sustainable funds performance

Hundreds of global investors responsible for more than $27.5tn are growing concerned about the performance of their ESG investments, with those based in continental Europe anxious about greenwashing risks.

A flagship annual survey of 770 institutional investors by FTSE 100 asset manager Schroders, published on 7 July, indicated performance as the top challenge for 53% of global respondents, when investing sustainably, up from 38% in 2021.

Schroders said increased worries about performance “likely reflects the more challenged market environment”.

Sustainable investment funds have struggled to outperform since the start of the year.

According to data provided to Financial News by Morningstar, sustainable UK large-cap equity funds returned -10.96% on average between January and the end of June, compared to -7.09% for traditional funds in the same sector.

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Europe large-cap blend equity funds with a sustainable focus delivered -17.33% during the same period, compared to -15.81% for traditional funds in the same sector.

Meanwhile, greenwashing was noted as a concern by 54% of global investors responding to the Schroders survey, although this was down from 59% last year. However, 64% of investors in continental Europe flagged greenwashing as their biggest worry.

Compounding concerns about greenwashing is a lack of transparency and reported data on sustainable investments, cited by 53% of UK respondents, who also flagged data and reporting as one of the most important considerations when investing sustainably.

“The findings of today’s influential study are striking; more and more institutional investors want to measure, manage and deliver impact,” said Andy Howard, Schroders’ global head of sustainable investment.

“Recognising concerns over tensions between sustainable investment and return goals, it is becoming clear that thoughtful approaches grounded in investment experience will be increasingly critical.”

Greenwashing has become a major focus for investors and financial regulators, with the Securities and Exchange Commission fining BNY Mellon’s investment adviser arm $1.5m in May after the US regulator accused it of making misleading claims about some of its US-based ESG funds.

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BaFin, Germany’s financial watchdog, continues to probe DWS after the asset manager’s offices were raided last month, prompted by allegations from a former employee that the firm overstated how much it used sustainable investing criteria to manage its assets — accusations DWS has consistently denied.

Despite citing concerns, investors still have an appetite to invest sustainably.

New investment opportunities to tackle decarbonisation would encourage 59% of respondents to invest more in sustainable funds. That figure rose to 68% for UK-based respondents.

To contact the author of this story with feedback or news, email David Ricketts

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