Interest in ethical finance is on the rise, but can the market keep up?

Nearly 75 per cent of Australians are considering moving to another financial provider if their current fund, bank or investment isn’t aligned with their values 

The Australian finance industry is not meeting the ethical expectations of everyday investors, new research reveals, with the threat of greenwashing stopping 65 per cent of investors from switching to an ethical bank.  

The latest research from the Responsible Investment Association Australasia (RIAA) revealed that despite the uncertainty of the past couple of years, nearly 75 per cent of people said they would shift banks or superfunds if their current fund wasn’t aligned with their values. This rises to 87 per cent for the younger generations.

Nearly 30 per cent of Australians are already investing ethically, up from more than 10 per cent from when the study was last conducted in 2020, with the trend led by Gen X’ers and millennials.   

But the research found that financial service providers need to do a better job of meeting expectations, with 72 per cent of the population saying they are concerned about greenwashing, and 65 per cent of people even saying the threat of greenwashing had stopped them from swapping to an ethical bank. 

Simon O’Connor, the CEO of RIAA, told Pro Bono News that Australians were more aware than ever of the power behind their dollar, and were now looking for real commitments from finance companies. 

“We’ve seen a really healthy rise in scepticism around the claims being made by the finance sector. They [consumers] are no longer just believing everything they are being told and are taking a look under the hood to check everything is as it should be,” O’Connor said. 

“The finance sector needs to take this as a warning… and be really clear on what they’re doing and not doing in responsible and ethical investing because anything less, risks being seen as greenwashing.” 

Importance of independent verification on the rise

The report also found that 77 per cent of people who were considering investing responsibly within the next few years were more likely to do so if the product was independently certified by a third party such as B Corp or RIAA. 

Corin Millais, the head of socially responsible banking at Teachers Mutual Bank Limited, said that these certifications made it possible for customers to “sort through the wash”. 

“Australians are on the money to call out greenwashing in finance. Accreditations like RIAA Certification and B Corp give substance to the sustainability claims finance managers tout,” Millais said. 

A mismatch in expectations

While funding action on climate change remains an important issue for Aussie investors, social issues were also of increasing interest, with three quarters of Australians wanting to put their money into issues such as avoiding animal cruelty or human rights. 

But the research said that there was a mismatch between the social and environmental issues consumers are most concerned about and the products on offer. For the 67 per cent of investors wanting to avoid animal cruelty, animal testing, and animal products only 32 per cent of investment providers offer such products. 

And for the 63 per cent of Australians who want to avoid investments that violate human rights, only 39 per cent of responsible investment providers deliver products that meet this criterion. 

O’Connor said that the finance industry was at “a really important moment in time” where it needed to be careful that the kinds of products available matched client expectations, or else the credibility of the sector could be damaged quite significantly. 

“In any market where there’s growing interest, we’re going to need to be really careful to ensure that the standards are really clear and that the language we’re using to describe products is really precise… because that’s where confusion starts and clients end up in an investment product that doesn’t actually deliver on what they’re looking for.” 

Read a full copy of the report here.