Savers and investors are becoming increasingly environmentally conscious but how sure can they be that their cash isn’t being used for environmentally destructive purposes?
Green Finance special report looks at how there has been an exponential growth in sustainable finance over the past number of years.
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"If we're talking about deposit savings accounts, the short answer is 'not very'," says Brian Haugh, head of BDO valuational and financial modelling centre.
The key question is “what does the bank do with the money that I give it?” To the best of my knowledge no Irish banks are offering specifically “green” savings accounts. These are accounts which would be ringfenced to provide funding for green projects. As such savings accounts form part of the overall deposits at the bank and are linked to the total lending that the bank does,” he points out.
In fact, given that the banks are raising finance through green bonds in order to allocate cash specifically for green lending, this may mean that the savings accounts are more likely to be part of the funding mix for non-green lending.
“That’s not to say that non-green lending is necessarily environmentally destructive, for example mortgages would fall into this category. However, if the bank is funding any environmentally destructive purposes then deposit holders are contributing towards this,” he cautions.
While some European banks, such as Triodos, explicitly state that they will not fund unsustainable projects, they don’t offer savings accounts in the Irish Market.
“At the moment savers looking to ensure that their savings are truly green will have to consider specialist products such as green bonds or green investment funds which come with strict restrictions around what the money can be used for,” says Haugh.
Yet when Amundi Ireland surveyed Irish savers and investors on this very topic last year, it found what while four out of five savers believe that responsible investing is important, respondents were largely unaware if their savings were actually invested in ESG (environment, social and governance) friendly products.
Amundi is the largest asset manager in Europe, with €2 trillion managed on behalf of savers across the world. It has had a presence in Ireland since 1998 and employs 300 people here.
This survey was the first of its kind for Amundi Ireland and will be carried out on an annual basis to track key measures on sustainability, ESG and Responsible Investing.
Its findings show there is now an onus on the industry to do more to raise awareness of ESG products and the benefits of responsible investment generally.
Despite all the efforts the industry has made in relation to ESG in recent years, the survey found that financial services firms are not closely associated with sustainability in the public mind at all.
Indeed, it was retail giants Lidl and Aldi, and energy providers SSE Airtricity and Electric Ireland, whose brands were "top of mind" when respondents were asked about brands in the Irish market which they consider to be responsible.
Given the central role finance plays in economic development, the opportunity for the industry to show its ESG credentials is enormous. Yet very many respondents weren’t even familiar with the term.
“The interesting thing was that 80 per cent of people who took the survey, whether it was their savings, pensions, investments, all wanted to do good. But almost in the same breadth were saying they didn’t know how to do it,” says Graham Fox, Amundi’s head of retail business for Ireland.
As individuals, the best way to redress this is to talk to our financial adviser or broker about what our values are and then figure out which products available on the market align best with those, he advises.
The good news is that it just got easier too. “The EU is trying really hard to create more transparency around this area to avoid green washing. That happens where funds might look green from a marketing perspective but if you look under the bonnet you’ll find they are not,” he says.
The European Union’s new Sustainable Finance Disclosure Regulation (SFDR) takes aim at such products. By standardising sustainability disclosures, the goal is to help both institutional asset holders and retail clients alike to understand, compare and monitor the sustainability credentials of investment funds.
Light green
It does this through the creation of a classification system for funds in relation to the companies in which they invest. For example, under the SFDR a fund classified as article six is a very light green, simply excluding investments in coal or tobacco firms, for example.
An article eight classification means investments in companies that try to improve the planet, but perhaps only 40 or 50 per cent of the total fund invests in such companies. Article nine are deepest green funds, in which everything is invested companies with sustainable objectives and “that do right by the planet and by society”, says Fox.
In the early days of ethical investing, such products were almost always associated with a trade off in terms of lower investment returns. That is no longer the case.
“If you look at where the world is going, and where the opportunities will be in the future, it will be in the sustainable, renewable space, from solar energy to green hydrogen,” says Fox.
“These are the ones we believe will be the key growth areas, and which will help generate positive returns. Over the last five years if you had invested in ESG companies you would have outperformed.”
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