Learning From The Food Industry To Progress Sustainable Investing

The discussions struck me on sustainable fashion at a panel I attended recently. I was surprised at how the industry struggles with a lack of common definition of what constitutes sustainable clothing and that this lack of clarity is presenting a real barrier to consumer adoption.

Interestingly, one of the panelists mentioned learning from the finance industry, where there has been some progress toward standardization and consistent labels. While there has indeed been progress, we are not moving fast enough as an industry. Based on our latest investor survey, comprehensibility, and comparability remain some of the biggest challenges to retail investors getting started to invest sustainably.

The finance industry is missing a significant opportunity to channel retail investor capital to sustainable development if we do not accelerate the progress on addressing some of these barriers. Standard Chartered’s Sustainable Banking Report reveals USD 8.2 trillion of retail capital potential that could be channelled towards sustainable investments, with climate investing gaining traction. Of this, a potential USD3.4 trillion of retail investor capital could be mobilised towards climate investments in 10 growth markets across Asia, Africa and the Middle East by 2030.

The research – based on investor interest from a survey of 1,800 respondents – further breaks down investor interest into climate mitigation and adaptation themes. In climate mitigation, investors showed high interest in renewables, energy storage and energy efficiency, signifying a potential USD2.1 trillion that could be directed to this theme, while USD1.3 trillion could be channelled into climate adaptation, across resilient infrastructure, food systems, biodiversity and the blue economy.

However, while investor interest is strong, with over 90% of investors surveyed stating they are interested in climate investing, only approximately 20% are willing to invest significantly.

For many years, perceived low returns and higher risks were cited as the top barrier for investors getting involved. It is encouraging that investors are now more educated on how considering sustainability factors such as climate change can help them build more resilient portfolios and capture opportunities in markets through some long-term structural themes. Perceived low returns (cited by 59% of respondents) ranked lower than comparability (65%) and comprehensibility (63%) in terms of barriers to entry.

To address the challenges around comprehensibility and comparability, more work needs to be done in terms of consistent labels for sustainable products and an easy-to-understand narrative about what sustainable products offer. There remain too many jargons and concepts especially in the climate investing space, and accordingly too much for consumers to make sense of.

There might be some lessons we can learn from the organic food industry, where much progress has been made in terms of labels and benefits to consumers. The more we can translate the nuances of sustainable – and more specifically climate - products into what this tangibly means and the true value they provide, the more we can get investors to think about incorporating them into their banking and investment portfolio.