Lack of agreed definitions adds to confusion over ESG products

The industry, regulators and Government need to continue to work towards developing more consistent consumer labelling standards around environmental, social, governance (ESG) products as almost half of Australian consumers feel confused by terminology and the lack of agreed definitions.

The research conducted for Colonial First State (CFS), which surveyed close to 1,500 consumers aged 16 to 89 in July, has found that only 6% of consumers understood ESG and/or sustainable investing, and almost half (48%) found ESG or sustainability investment claims confusing.

Furthermore, around half of consumers did not understand the term ‘net zero’ (50%) or ‘carbon offset’ (43%) and less than one in 10 (9%) of respondents were confident in their understanding of the differences between a ‘sustainable fund’ and an ‘impact fund’.

The study also revealed that almost two in three (58%) did not know how to compare different ESG options and blamed the lack of consistent terminology and jargon for confusing them.

Kelly Power, chief executive of Superannuation at CFS, has said that the company recognised people had divergent views about what ESG meant, particularly when it comes to investing.

“That is why we offer a wide range of investment options, so that members can invest their savings in a way that is most aligned to their personal preferences,” she said.

According to CFS, the consistency in consumer labelling standards could help customers make more informed decisions with regards how they wanted to invest their money and, at the same time, provide a reasonable basis for superannuation and investment funds to label their products.

The Government’s recently released Sustainable Finance Strategy has confirmed it and recognised the need to improve sustainability labelling for investment products.

CFS has said it will engage during the consultation to support the objectives of the Strategy.

The company is also working with financial advisers to support them in discussions around ESG with their clients and would be looking to provide them with dedicated tools.