I was struck by the discussions at a panel I attended recently on sustainable fashion. I was surprised at how the industry struggles with a lack of common definition on what constitutes sustainable clothing, and that this lack of clarity is presenting a real barrier to consumer adoption.
Interestingly, one of the panellists mentioned learning from the finance industry, where there has been some progress towards standardisation 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 on investing 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 2023 reveals US$8.2 trillion ($11.04 trillion) of retail capital potential that could be channelled towards sustainable investments, with climate investing gaining traction.
Of this, a potential US$3.4 trillion of retail investor capital could be mobilised towards climate investments in 10 growth markets across Asia, Africa and the Middle East by 2030.
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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 US$2.1 trillion that could be directed to this theme, while US$1.3 trillion could be channelled into climate adaptation, across resilient infrastructure, food systems, biodiversity and the blue economy.
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 towards it.
See also: India aiming to finalise carbon deals with Japan, Singapore
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.
Across various barriers to entry, perceived low returns (cited by 59% of respondents) ranked lower than comparability (65%) and comprehensibility (63%).
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 around what sustainable products offer.
There remains too much jargon, especially in the climate investing space — too much for consumers to make sense of.
There might be some lessons to be learnt 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 products — and more specifically climate — 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 portfolios.
Eugenia Koh is global head of sustainable finance for Standard Chartered’s consumer, private and business bank (CPBB)
