9th November 2010
Pressure on banks to become more ethical is growing with a survey finding 73% of Britons do not want them to invest in nor lend to firms involved in areas such as arms manufacturing or that have poor records on the environment and human rights.
The research on consumer attitudes to green and ethical finance carried out by Ipsos MORI on behalf of independent research organisation EIRIS, also reveals that the amount of money invested ethically in the UK has risen 289% over the last decade.
The survey, unveiled as part of National Ethical Investment Week, identifies "clear evidence" of the need for change in all investment and lending practices.
Two thirds of those surveyed think that banks and other financial institutions have not learnt the lessons needed to prevent a future financial crisis but instead have reverted to 'business as usual'.
My-Linh Ngo, associate director of Sustainable and Responsible Investment (SRI) research at Henderson Global Investors, believes having a responsible lending policy is "critical for banks, not just in terms of the financial implications of bad debt as already been seen with the current global financial crisis, but in terms of reputational impacts."
My-Linh adds: "There was already a high level of public distrust of the financial services industry, this has been further exacerbated recently, and a critical solution to tackling this is for the banks to realign their business practices with societal expectations. This must be done if public trust and confidence is to be restored."
Environmental disasters, such as BP's Deepwater Horizon oil spill off the Gulf of Mexico, also continue to weigh on consumer attitudes to the finance industry, with the survey finding that 82% of respondents believe it is important for financial product providers to pay more attention to environmental, social and governance risks when deciding which companies to invest in or lend money to, as part of ensuring a good financial return.
Survey respondents were also presented with a list of ways that banks or financial institutions could offer more to their customers.
Ranked most highly was the disclosure of information on how and where banks lend to or invest their money, with 77% thinking that banks or financial services providers should have this.
When asked what might encourage them to switch to an ethical financial product or service:
•· 38% would be more likely to change if more information was available on the high street about ethical/green products
•· 43% said they would be more likely to switch to an ethical financial product if its green and ethical credentials were externally verified so that it was easier to trust the claims made
•· 41% would be more likely to change if a greater choice of ethical/green products was available
•· 37% would be more likely to change if there was more information available on how green/ethical products make a difference in the world
Mark Robertson, head of communications at EIRIS, says: "It's clear that there's a lot more that financial institutions can do to build trust and persuade us that they have switched away from short-term, unsustainable investing and lending practices.
He adds: "Our survey shows that there's a huge appetite for a more intelligent approach to finance which places a greater emphasis on society and environment as part of a path towards a more sustainable financial future".
In order to assist people looking for ethical financial products, EIRIS, whose research is focused on social, environmental governance and ethical performance of companies, has launched what it claims is the UK's first consumer website dedicated to providing free, independent and unbiased information on all aspects of ethical finance.
The website incorporates a traffic-light rating system to show how banks measures up against a set of specially-developed green and ethical criteria. Consumers can also search for investment products, including ISAs and funds that match their green and ethical concerns or learn about how their pension scheme invests.
The site also features a section dedicated to student finance and guides on financial exclusion and "greenwash" in financial product marketing.
EIRIS's move will be widely welcomed but it is clear responsibility for encouraging investors and savers to think more about responsible investing lies with many players across the sector, including financial advisers. As Henderson's My-Linh says: "In order to sustain and continue to grow the SRI market, the industry needs to foster the trust and confidence of investors. That means ensuring we are actually investing in responsible companies, and those providing solutions to environmental and social problems; as well as demonstrating how investing in this area can generate positive financial performance."
According to BusinessEthics, the term greenwash was first coined by environmentalists in the 1980's to describe green advertising whose purpose was to cover up environmental wrong-doing. Over time, the word has come to mean any type of marketing that presents a green business, green products, or green design as sustainable or eco friendly without proof, in misleading terms, or to cover other sins.
There has recently been interest in the creation of a ‘kitemark' for ethical investment following calls by Barchester Green Investment for its introduction, as reported by FT Adviser.
My Linh says that over the years there have been efforts exploring the development and use of a quality standard for SRI products, a ‘kitemark', but that this has proved challenging and to some extent, has not been particularly helpful, as there is no single SRI approach.
Instead the SRI industry has developed a spectrum of different strategies, for instance negative screening, engagement and thematic investing. My-Linh says having this spectrum is "great as it offers choice for investors, enabling them to align their social and environmental values, whilst meeting their financial objectives….what is more important is transparency – product providers need to be open and clear about what their products are about."
The MORI survey echoes the findings of an YouGov poll, as reported by Mindful Money. The poll shows that the increased interest in green, ethical investment in recent years shows sign of waning, with more than half of all British adults with investments surveyed by YouGov saying they want to "make money and make a difference".
The MORI online survey sampled 1022 British adults aged 16-64 and was carried out 3-4 November 2010, and is weighted for the population.