Education is key to moving sustainable investment from niche to mainstream: Study

Johannesburg - A flagship study of over 23,000 investors from 33 global locations found that the majority of South African investors believe that investing sustainably is key to driving long-term returns, while just under 70% of these investors felt that their investments could contribute to solving environmental, social and governance (ESG) challenges. However; as the data illustrates, two key hurdles are stemming the tide of sustainable investing in South Africa: a lack of education and access to transparent reporting and data.

Schroders Global Investor Study (GIS) 2022 asked 400 South African investors to identify the factors that would encourage them to increase allocations towards sustainable investments. Seventy-one per cent of respondents identified education as the leading factor, followed by the ability to choose investments aligned with their personal sustainable preferences (70%). Evidence of the link between sustainability and better returns took third place in the list of motivating factors.

Educated investors are empowered investors

According to Kondi Nkosi, Country Head of Schroders South Africa: "Education is the key to accelerating the status of sustainability-focused investment from niche to mainstream. There is a clear need for local investors to be empowered with reliable information as well as education on how to interpret and use that data to inform their decisions."

Although the Study highlighted a prevailing need for general education on sustainable investing, the 'lack of clear, agreed definitions on what sustainable investment is,' appears to be at the crux of the problem. For Nkosi, this evidence points to the fact that across the investments landscape, sustainability is regarded as the 'new kid on the block' and its parameters are still being defined and standardised within broader investor discourse.

Nevertheless, as Nkosi asserts, "We have a responsibility as industry shapers to keep investors well-informed and armed with information on the latest developments – and what these changes mean in terms of risk and opportunity.

"As a starting point, we need to ensure that all investors are confident in their knowledge of the fundamental principles of sustainable investing and what it means for the future – both in the financial sense and within the broader global context."

Broader access to better data – an industry directive

Another barrier to the mass adoption of sustainable investing is the 'lack of transparency and reported data from providers about the impact of these investments,' as 57% of survey respondents agreed. The same percentage of investors purported to be sceptical about the real impact of their investments.

Exacerbating this prevailing sense of mistrust is the fact that more than 50% of survey respondents believe that providers and financial institutions engage in 'greenwashing' as a marketing ploy to boost their revenue and reputation.

Practical solutions to this barrier include regular and transparent reporting from providers and businesses across their value chains. Investors also need to have access to clear information on how their investments are contributing to the financial health of their portfolios as well as the direct effects on people and the planet.

"The axiom, 'knowledge is power' could not be more apt within the current investment environment. Education is vital on two fronts – helping investors to understand what we mean by 'sustainable' and outlining the exact metrics that will serve as performance indicators both in terms of financial returns and social and environmental impact," explains Nkosi.

Certification bodies will play an increasingly important role in ensuring that providers remain compliant with sustainability standards and that confirmation of this is extended to investors. The role of financial advisors will remain key in delivering this information to the investor.

Sustainable investing as a vehicle for change

As Nkosi concludes: "The GIS illustrated that South Africans are deeply invested in the social dimension of sustainability, with investors naming the eradication of poverty and hunger, the provision of quality education and the fostering of good health and wellbeing as their top areas of impact.

"In a country where the solving of these exact social ills is so central to sustainable development, we feel the urgency to educate investors even more acutely. In the year ahead, industry stakeholders need to focus on supplying transparent information that will help investors to understand the importance of their contributions on the road to a more sustainable future."

Schroders' quarterly Sustainable Investment Reports can all be accessed here.

The full GIS report focused on sustainability is accessible here.