Sustainable is the buzzword of the moment – regardless of whether we talk about food, clothing or investments. However, how can consumers be sure that a financial product is sustainable and that it “does exactly what it says on the tin”? To provide better guidance, the Austrian Chamber of Labour did not only commission a study to examine sustainable financial products but has also used mystery shoppers assessing the quality of advice regarding sustainable monetary investments provided by 16 financial institutions.
The starting point of the AK study is the Action plan “Sustainable Finance”, which was published by the EU Commission in 2018, the Taxonomy Regulation and the Sustainable Finance Disclosure Regulation. The Taxonomy Regulation determines what constitutes as ecologically sustainable economic activity, for example when an investment significantly contributes to the realisation of environmental objectives (such as climate protection). Apart from that, international social und labour law minimum standards have to be observed. The Sustainable Finance Disclosure Regulation requires financial service providers to disclose, environmental, social and governance factors in respect of investment decisions.
The study’s Mystery Shopping assessment, targeting 16 banks in Vienna, Lower Austria and Carinthia has shown that it is quite difficult for consumers to find a sustainable investment product. In order to ascertain how consultations on sustainable investment funds are being conducted, test buyers were sent to bank branches with the following result: in most cases, the wish of test buyers to obtain a sustainable investment product had been ignored. The problems, revealed by the study include among other a too soft regulation on sustainability criteria. Since clear definitions and minimum limits, as to what is regarded as sustainable in accordance with the Disclosure Regulation are absent, financial institutions define themselves, which fund they declare to be sustainable. Hence, financial products may be classified as sustainable even if only 1 % of the fund volume is actually sustainable. Apart from that, financial institutions do not attach great value to transparency and their websites hardly provide information on the two EU Regulations beyond the legal minimum required.
It is also problematic that most financial institutions still think in terms of quarters: yield takes precedence over sustainability. However, if the top management clearly commits to sustainability, the entire company will take it on-board. However, such a commitment could not be established in respect of all financial institutions investigated. This is also reflected in their engagement (activities of financial services providers such as investment companies) to influence companies and to motivate them to provide more sustainability. Only a quarter of the banks investigated act accordingly (e.g. by dialogue, etc.). The proportion is higher in respect of investment companies: about two thirds of the investment companies interviewed confirmed engagement activities (e.g. by exercising voting rights in shareholders’ meetings).
Generally, the quality of consultation has a high potential for improvement. Even though during the initial contact, test buyers had explicitly asked for a sustainable product, they were only offered conventional funds. The “medium risk”, which test buyers were willing to accept, was frequently ignored; every second fund offered had been an equity fund with a high level of risk. Amazingly, already existing quality seals, such as the Austrian Eco-Label for investment funds, did not feature in the consultations at all – neither as a quality characteristic nor as a selection guide.
Apart from more sustainable financial products in the giro, savings and credit sector as well as a more active role of the financial market authority, AK demands sustainability-related minimum criteria for all financial products, in order to be able to call a product “sustainable”. This also comprises a blacklist, which excludes certain companies from being included in an “investment pot”, following the example of the Norwegian pension fund. More transparency in respect of sustainability reporting is also required. In this context, AK calls for a more detailed definition of disclosure provisions. Furthermore, more precise criteria for sustainability should be determined, in particular in respect of the taxonomy and disclosure regulation.
From AK’s point of view, it is imperative that banks improve their consultation methods. Quality seals – such as the Austrian Eco-Label for investment funds – should become an integral part of consultations. Apart from that, private customers should also have access to sustainability; it should not only be a prerogative for high-level investors or institutional customers. With this in mind, the EU action plan on “Sustainable Finance”, the Sustainable Finance Disclosure Regulation as well as the Taxonomy Regulation – currently on everybody’s mind due to the debate on the possible definition of nuclear energy as a “green” source of energy – should also be substantiated at European level.