It comes as no surprise that fund managers are repurposing and rebranding existing funds to make them more attractive to ESG investors. In 2020, 253 funds switched to an ESG focus, with 87% of them rebranding in the process – typically adding terms such as “sustainable”, “ESG”, “green”, or “socially responsible investment (SRI)” to their names to highlight the change and ensure they can be easily identified by online search engines.
What is surprising, however, is that the demand for sustainable investment products is not reflected in the functionality of retail investment websites. For most retail investors, the search function of the relevant websites is limited, making the sourcing of ESG investment opportunities more difficult than it should be.
The challenge for investors
So while asset managers are investing significant resources into designing, constructing and managing investment and exchange-traded funds (ETFs) that enable clients to focus their capital on businesses that actively reduce the harm they cause the planet – they are undermining themselves by failing to make the results of these endeavours transparent.
Evidence of this comes from a recent Planet Tracker investigation, which examined 22 websites offering retail investors and financial advisers the ability to select funds and/or ETFs. The survey revealed that the search function offered by most of these websites was inadequate. And, while 22 websites is a modest sample size, six of these were portals, offering access to investments from a variety of asset managers – covering a considerable percentage of the available retail investment offerings.
More than 70% of the websites surveyed failed to offer an ESG filter, despite the ready availability of fund-filtering technology. Half the websites offered investors the ability to filter mutual funds and/or ETFs by asset class using checkboxes or drop-down menus, which made it quick and easy to narrow down the number of investments to be reviewed in more detail. Yet they failed to include an ESG filter, despite the obvious need.
More positively, one website, TrackInsight, stood out from the rest. Not only did it provide an ESG filter, it offered the ability to search for particular ESG strategies.
Opportunity for innovation
Retail investors are clearly underserved by investment websites, especially when seeking to avoid particular ESG risks such as deforestation. Mostly, investors have to resort to reading individual fund fact sheets from ESG funds thrown up by a website search, an unnecessarily laborious and time-consuming process.
A series of Invest Your Values websites run by As You Sow (a non-profit foundation promoting corporate social responsibility through shareholder advocacy and other strategies) demonstrates that the technology and data exist to allow investors to search more effectively for sustainable investments. The websites cover seven different themes, from fossil-free funds, through deforestation-free funds, to prison-free funds. Using the deforestation-free funds website, for instance, an investor can quickly identify funds that align with their desire to avoid deforestation risk.
However, even As You Sow’s websites do not provide everything investors need. They only cover US funds, so the much larger universe of European sustainable funds is missing. Nor do they provide the same level of search functionality offered by the better websites in our survey in relation to non-ESG factors – such as asset class and passive/active management.
There’s work to be done, and – in fact – a significant opportunity for innovation, both in terms of sustainable investment product design and search and selection functionality on investment websites. The Invest Your Values and TrackInsight websites show what’s possible from an ESG perspective. Others need to understand the extraordinary appetite for ESG investments and adapt or become increasingly irrelevant.
On 10 March this year the EU’s Sustainable Finance Disclosure Regulation came into effect. This requires asset managers to be more transparent regarding ESG disclosure. So even the regulatory regime is catching up – making it imperative for investment websites to become leaders rather than followers in the ESG investing space.