Impact investing becomes the hot topic but terminology confuses investors

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UK investors are prioritising responsible investment but remain confused when it comes to investment terminology, new research shows. 

Nearly two thirds of investors surveyed by Close Brothers Asset Management, who currently have an average of £320,000 invested, are prioritising responsible investment over ‘traditional’ returns. 

Interest in so-called impact investing has surged in recent years and the recent regulatory push by the government has driven the pace of development in responsible investment.

The latest set of Investment Association figures show responsible investment funds saw a net retail inflow of £1.6bn in March bringing funds under management to £66bn. 

Close Brothers’ research reveals investors do not think they need to sacrifice financial returns in order to invest sustainably. A staggering 85 per cent believe investing sustainably will either improve, or provide the same returns, as traditional investing.

Despite the growing awareness of this type of investing, some of the terms associated with it are still causing confusion, particularly among older investors. 

Less than one in five – 18 per cent – investors know the term SRI (social responsible investing) while three quarters of savers aren’t confident in their understanding of ‘impact investing’, ‘ethical screening’, ‘greenwashing’ or the ‘UN Sustainable Development Goals’.

The most understood term is the catch-all ‘responsible investing’ but still just 39 per cent  of investors are confident they fully understand its meaning. 

 “This research demonstrates what many have suspected for some time. Significant numbers of UK investors prioritise responsible investing, but their understanding around it is very limited,” Darren Saddler, Head of Investment Business Development at Close Brothers Asset Management said.

“This should be of concern to the industry as our findings point to a significant knowledge gap in a world where terminology is critically important.” 

The research found younger investors are more confident in using the terms, similarly those with financial advisers were more likely to understand each term.