Over half (52%) of investors are aware of the FCA’s Sustainability Disclosure Requirement (SDR) investment labels, but vague wording and jargon remain amongst the biggest barriers to investment in sustainable funds.
The Investment Association and The Wisdom Council surveyed UK retail investors with an interest in sustainable investing and financial advisers with clients invested in sustainable funds to take the temperature on the new labelling regime. Key trends uncovered by the research included:
High levels of label awareness – but technical language remains a barrier
Over half (52%) of retail investors are aware of the FCA introducing a labelling system for sustainable funds, and almost all (94%) said they would find it helpful.
On the adviser side, 4 in 5 (86%) said they are aware of the labels, and over three quarters (77%) are confident they understand enough about the labels to choose funds appropriate for their clients’ sustainable preferences. Almost half (46%) of those investors who were aware of the labels had been told by their adviser, highlighting the important role advisers play in sharing key regulatory updates.
Amongst advisers expecting to use labels, Sustainability Mixed Goals (35%) was expected to be used the most when selecting funds for clients, followed by Sustainability Impact (29%). Sustainability Focus was expected to be used the least by advisers (16%).
However, there is mixed confidence in sustainable terminology among both advisers and investors. For around half of investors, vague words, jargon and a lack of detail on fund documentation create barriers to investing in funds. Investors’ understanding of sustainability-related terms also varies and very few have heard of concepts like ‘Positive Tilt’ (17%) or ‘Paris-aligned’ (15%) and would require further explanation.
Fund name changes won’t necessarily trigger sales
The research shows that changing the fund name because of SDR, for example to remove sustainable terms from the names of funds without a label, will not necessarily trigger sales.
Only 6% of retail investors surveyed said they would sell a fund if it didn’t meet the new criteria for a sustainability label. However, a higher percentage of advisers (1 in 5) would sell or switch if a fund didn’t meet the criteria for a label.
Younger generations are sustainable savvy
Younger investors are more aware of the new SDR labels, with 63% of Gen Z and Millennial investors aware of the regime, compared to 34% of Gen X and 26% of Baby Boomers.
The information gap for sustainable funds is also seen more clearly across the generations – awareness of concepts including ‘responsible investing’ and ‘ESG’ is higher amongst younger generations. Younger advisers are also more comfortable explaining concepts including ‘investor contribution’ and ‘UN SDG’, compared to Gen X and Baby Boomers.
Social media is a key information source for these younger groups (30%+), while Baby Boomers acquire information mainly from investment services through their bank or building society (39%).
Investors want to go green but don’t want to sacrifice returns
Green investment is high on the agenda for financial advisers, with nearly half (48%) ‘always’ speaking to clients about sustainability, and 92% reporting an increased appetite for sustainable investment from investors.
However, the research showed that the final decision on whether to invest in sustainable funds or products comes down to return – 55% of investors would consider return more important, compared to just 8% who would consider sustainability top of mind.
Miranda Seath, Director of Market Insights at the Investment Associationcommented:
“The end goal of the SDR and labelling regime is to bring greater transparency and consumer confidence to the market for sustainable investment products.
“Our research has shown a positive trend in awareness of the labels amongst advisers and investors, with 94% of investors stating they would find the labelling system helpful. However, the labels are only a starting point. Investors want to understand from fund managers how their money will be invested and to what end before selecting a sustainable fund and ideally want to see real-life examples of how the funds make a difference.
“Vague words, jargon and a lack of detail create barriers to understanding. Clear and accessible language is central to giving investors confidence in their decision-making – and this must remain front of mind for fund managers, advisers and regulators as label uptake increases.”
Dawn Hyams, Head of Investor Governance, The Wisdom Council commented:
“As awareness of SDR builds, we are seeing a real appetite for clearly articulated content on how funds aim to drive change through their sustainability approaches – whether or not they have adopted a label. Our research tells us that investors and their advisers are much more likely to engage with those firms that can bring fund strategies to life in an authentic and meaningful way, using simple language and case studies. Effective education and support will be key to making a success of the regime.”
About the research
The IA and The Wisdom Council surveyed 1081 UK retail investors with a propensity to invest sustainably between the 10th and 23rd of December 2024:
- 59% of investors were male and 41% were female.
- 70% were advised and 30% were self-directed.
- Investors came from across the UK: 40% were based in London and the South East, 31% came from the North of England (including Scotland), 12% were from the Midlands, 10% from the West and 7% were from the South.
- Millennials (28-43) had the highest representation by age group (44%) and 21% of investors surveyed were Gen Z (18-27). Nearly a quarter (23%) were Gen X (44-59) and Baby Boomers (60+) made up 12% of respondents.
Over the same period, the IA and The Wisdom Council surveyed 261 UK financial advisers with at least 2 years tenure who have clients invested in sustainable, ESG, ethical or responsible funds:
- 70% of advisers were male and 30% were female.
- 41% said that most of their clients had responsible funds and a further 59% said that at least some of their clients were invested in responsible funds.
- Advice firms participating range from 1% of firms with one adviser to 11% with more than 200 advisers. 34% (the highest proportion) had 11-50 advisers.
- The advice firms surveyed also had a range of AUM, with the largest managing over £5bn on behalf of clients (7%) and the smallest managing under £200m (12%).
- 37% managed between £500 and £999 million, the highest proportion.
- Advisers ranged from Baby Boomers (4%) to Gen Z (17%) and Gen X (16%). But the largest group by far was Millennials at 63%.
For more details about the profile of investors and advisers surveyed, see the full research report here.
