Simple, jargon-free language key to navigating sustainable investing for retail investors

As investors become increasingly interested in sustainability and the impact of their investments on the wider world, new research suggests they welcome proposals to introduce fund labels to make it easier to choose sustainable investment products. Clear criteria, specific measures and accountability were seen as key in helping investors to navigate the rapidly evolving sustainable investment landscape.  

New research, conducted by the Wisdom Council and the Investment Association (IA), asked focus groups of 40 retail investors and 17 financial advisors about their approach to sustainable investing. Investors were able to discuss sustainability in detail with many having clear expectations of what that might mean, although individual outlook and understanding differed among the groups.  

Investors agreed that a clear labelling system (similar to those used in food or energy) would offer peace of mind, helping them feel like they have more agency in their investment decisions. Both retail investor and advisor focus groups preferred a straightforward framework with clear distinctions between labels, with support for jargon-free and simplified language and definitions. Investors instinctively made use of reference points such as a traffic light system when thinking about ways to find sustainable funds. Fewer label options was perceived as easier, manageable and leaving less room for nuance.  

The research also found that while retail investors show a clear interest in investing sustainably, returns remain an important concern. Investors also see sustainable investing as suitable for long-term goals, rather than a short-term commitment. Many saw sustainability as framed by environmental considerations, but the most engaged investors were more likely to consider sustainability as encompassing social and governance issues. The term ESG was virtually unknown to investors, even those who were actively choosing responsible investments. 

Investors recognised that fund exclusions could help them to exercise their ethical preferences, for example, by screening out gambling, tobacco or fossil fuel companies. However, fund exclusion choices were seen as highly personal and based on ethical concerns and weren’t seen by investors as an inherently ‘sustainable’ investment approach. 

Investors were supportive of funds investing in companies to help firms become more sustainable, and most felt that all companies are at different stages of their sustainability journey. They were positive about funds that aim to help companies become more sustainable. Investors were sceptical that any company could be classed as fully sustainable. 

Miranda Seath, Head of Market Insight, the Investment Association, said:  

“Despite the difficult geo-political and economic backdrop we’re seeing this year, investor commitment to sustainable and responsible investing has remained noteworthy. Today’s savers are influenced by their personal experiences and are making more sustainable choices in the way that they live their lives. Increasingly they also want to use their investments for good and to have the confidence that when they invest in a responsible and sustainable investment product, that product is clear and matches their preferences and expectations. What is clear from this research is that while people want to use their money for sustainable aims, they are finding it difficult to navigate the growing range of sustainable funds available to them.  

“That is why the Investment Association and our members are fully committed to working closely with regulators to build trust in the market for sustainable investments and to ensure there is clarity and consistency to the way our industry describes sustainable and responsible investment products to clients.” 

Dawn Hyams, Senior Consultant, The Wisdom Council, said: 

“The importance of a simple framework cannot be overestimated. Any labelling system needs to inspire consumer confidence and it can only do that if it provides clarity and reassurance. The words that we choose for the labels and how we define them will need to do a lot of heavy lifting – for both investors and their advisors. Responses to the language we tested through this research demonstrated just how important it is to get that right.” 

The IA also supports the aims of the FCA in its efforts to ensure good customer outcomes and a well-functioning fund market, including the development of a robust but easy to understand label framework that helps investors to have more confidence in finding sustainable investment funds. 

The research will be presented for the first time at the IA Sustainability and Responsible Investment Conference, to inform the discussion about the future of sustainable investing and will also be used to inform the IA’s response to the FCA consultation on sustainability disclosure requirements and investment labels.  The next stage of research will focus on developing a strong body of clear communication with investors.   

In its fourth year, the IA Sustainability and Responsible Investment Conference takes place today in at the AVIVA offices in London in partnership with Linklaters and HSBC, exhibited by Six, with Sacha Sadan, the Director of ESG at the Financial Conduct Authority giving the keynote speech.  

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