With the world racing to curb global warming, there has been a growing focus on green investments to help ensure money goes to support a sustainable future.
But making an eco-friendly investment can be complex, both because of a lack of clear comparisons between products and because of ‘greenwashing’ by companies that wrongly claim to be sustainable.
Now a new app can help investors check whether their finances are truly low-carbon.
Here’s why this is being hailed as a step forward amid a boom in ethical investments.
What’s the bigger picture?
Sustainable investment is worth more than $30 trillion globally, and demand for ethical products is growing sharply among individuals and institutional investors.
Some 85% of individual investors said they want their funds to make a positive difference in a survey of more than 26,000 people for investment management firm BlackRock this year – with climate deemed the most important factor.
Yet individuals can struggle to understand if their investments are truly eco-friendly and be left confused by a variety of methods for measuring ethical investments, said Lauren Peacock, campaign manager at responsible investment charity ShareAction.
How do green finance rankings work? Are they reliable?
There is no clear definition of many common terms such as ‘green’ or ‘ethical’ finance, said Peacock.
Many investors look to ESG ratings, which rate companies on their performance across a range of environmental, social and governance issues.
These rankings are a useful tool, said Peacock.
But firms that rank companies on their ESG credentials often use different methods and scoring systems, meaning some are more rigorous than others and products are also not always easy to compare.
A top European Union regulator in February called for action to better regulate agencies producing ESG scores amid concerns of greenwashing.
ESG ratings also rank companies on their combined performance across all three areas, meaning investors may struggle to get a clear view of environmental performance specifically.
How can an app help?
One new app, Sugi, aims to cut through the confusion by giving a simple, comparable ranking showing how much carbon an individual’s investments are creating each year.
Users can link it to their portfolio to create a personalised report on the total annual carbon cost of their fund, and the equivalent number of trees lost, based on data from environmental analysis firm Trucost.
Its creators say Trucost’s data uses both published environmental reporting and economic modelling to determine a company’s carbon impact across its own operations and across its entire global supply chain.
The free app, which is currently available in beta form ahead of a planned full launch in January 2021, also offers comparisons with the carbon costs of other products on the market.
Its founder Josh Gregory said it is intended to democratise access to environmental impact data, covering both individual company shares and thousands of investment funds.
“There’s a lot of passion out there for green investing … but it’s quite hard given the existing tools in the marketplace to understand what the environmental impact of a lot of investments is,” he told the Thomson Reuters Foundation.
The bottom line?
The app is “definitely welcome” said Peacock.
“What’s missing … is a bit more about the data,” she added, saying it would be good to see more detail about the methodology in calculating the carbon costs.
Sugi is not the only comparison tool available for ethical investments, with other options including Globalance World and the fund-manager-sponsored Fund Ecomarket.
Simple, user-friendly tools like this could help push the investment and pensions industries towards greater transparency, said Peacock.