‘Understanding ESG’

Financial providers need to do more to help individuals understand how their money is making a difference 

Do you need a degree in finance to understand your personal finances and investments? How can you make a difference if you don’t know how the system works? How can you decide whether your investments and finances are contributing to a green & fair recovery?  

Making information about personal finances (namely pensions, current accounts and investment funds) more accessible to individuals is what we set out to do with the EIRIS Foundation’s most recent research project. But we found some interesting roadblocks along the way. 

In planning for and researching the Green & Fair Recovery Project, a few things about the retail finance ecosystem became abundantly clear: 

  • Complex corporate structures, business lines and websites with country-specific firewalls make it difficult to understand who does what, and where we go to find it. 
  • Institutions such as banks, asset managers and pension funds seem to frequently be writing for their colleagues, not their customers, where Environmental, Social and Governance (ESG) issues and information are concerned. 
  • It feels like one needs a degree in finance to disentangle how our financial systems work and who is ultimately making decisions about where our money goes and what it finances. 
  • With little consistency in what kind of ESG data is communicated, it can be very difficult for individuals to compare products and to know what concrete impact their money is having.

We know that individuals can make a huge impact where public-facing companies are concerned. Companies that have products and services consumed by the public are more at risk to scrutiny in the event they mess up. Take for instance the number of companies, including Wal-Mart and Target, that have voluntarily raised minimum wage in the United States. Or companies like Patagonia or those that are B.Corps who have taken the initiative to state publicly their commitment to operating in a socially responsible manner. 

Well, what about financial institutions? These companies offer services to the public. Indeed, we rely on companies like banks, pension funds and fund managers to hold secure our financial futures. However, it often seems like individuals are not provided with what they need to have effective conversations with these institutions. What do they need? A baseline knowledge to know what kind of questions need to be asked, and the confidence to ask them.  

We know how difficult it can be to find the information, even when you know what you are looking for. That’s why the EIRIS Foundation has worked with UKSIF’s Good Money Week to present our findings to both individuals and investors. We intend to continue to promote disclosure of information, policies, systems and actions among financial services providers that lead toward a green and fair recovery.