Factoring in the net-zero consumer

While investors and asset managers may view their relationship as a two-way affair, a third avenue of consideration has opened up in the wake of high-profile cases of apparent greenwashing – the net-zero consumer.

Following the move by the UK’s Advertising Standards Authority (ASA) to make an example of HSBC’s “misleading” poster adverts produced ahead of COP26, the role consumers play in the broader sustainable investment space has risen in prominence. Potential pitfalls are clear if investors and asset managers continue to disregard the understanding of the public.

Sustainable intricacies

In its assessment of HSBC, the ASA concluded that consumers would understand the claims made in the adverts to show the banking giant making “a positive overall environmental contribution as a company” and that HSBC was “committed to ensuring its business and lending model would help support businesses’ transition to models that supported net-zero targets”.

However, the advertising regulator said it did not believe consumers would understand the intricacies of transitioning to net zero.

Its assessment read: “We therefore considered it [HSBC’s financing of the fossil fuel sector] was material information that was likely to affect consumers’ understanding of the ads’ overall message, and so should have been made clear in the ads. We concluded that the ads omitted material information and were therefore misleading.’

Luma Saqqaf, sustainable finance consultant and CEO of Ajyal Sustainability Consulting, agrees with the ASA’s assessment and says that investors “can’t expect consumers to understand fully what net zero means” when it comes to how financial institutions intend to reach targets.

Similarly, the lack of transparency undermines investors’ understanding of net zero too, says Claire Benson, co-director of consultancy SDG Changemakers. She questions whether investors have a good understanding of what achieving net zero “actually takes”.

“Some understand the concept, but they don’t necessarily understand it from a systems view of the sector they are investing in,” she adds, pointing to carbon offsetting and the subsequent “land grab in the Global South” as indicative of an incomplete understanding of sustainability that “illustrates a disregard for equity and understanding of these communities”.

A 2021 report by Action Aid found that Shell’s carbon offsetting plans would require 12 million hectares of land by 2030, three times the size of the Netherlands, all while maintaining fossil fuel exploration.

Benson says that while acquiring land for carbon offsetting “provides a solution for business concerns” regarding Scope 3 indirect value chain emissions, the practice does not consider the “unintended consequences which will come in time, such as exacerbating food insecurity and poverty”.

She says: “A sustainable business is one which can translate macro-level sustainability challenges into business opportunities without causing conflict between financial demands, and societal and environmental needs.

“Investment today needs to be viewed properly through the lens of all the SDGs [sustainable development goals]. Ignoring any of these factors illustrates that there needs to be better understanding and knowledge sharing of what sustainability is within this sector,” she adds.

Understanding the consumer

The shortfall in understanding sustainability outcomes is reflected in research by the UK’s Department for Business, Energy and Industrial Strategy (BEIS). Its 2021 survey of almost 7,000 members of the UK public found that 87% had heard of net zero – a figure higher than prior BEIS findings – yet only 39% had at least a “fair amount” of knowledge of what net zero entails. 

But changing consumer behaviours can create pitfalls for a wide range of stakeholders – investors included.

Dislocations between consumer expectations and knowledge of sustainability and that of investors and asset managers can present significant challenges, says Josh Wood, founder of business advertising platform Bloc.

“The stock market crash of 2008 occurred because investors and asset managers were not in tune with the reality that consumers were no longer willing to spend money recklessly. In other words, they were not in tune with the fact that consumers had changed their spending habits and no longer wanted to buy over-priced assets,” he says.

As such, the relationship between consumers and asset managers must change too, Benson says, with asset managers reshaping their messaging to better meet the needs of a sustainable economy.

“In the business-as-usual economic model, brand and marketing messages create value for the company through their influence over consumer behaviour and, ultimately, spending. But, more often than not, marketing messages can push us to purchase things we don’t need. As a result, this continues the overconsumption and production of consumer goods,” Benson says, a contradiction of the UN’s SDG 12 – ensuring sustainable consumption and production patterns.

While consumers and investors alike typically have a greater understanding of the importance to live within the means of our finite resources, the messaging from asset managers to investors and consumers must adapt.

Benson says financial marketing needs to “shoulder some of this responsibility,” and if it fails to do so, “should become secondary in investors’ decision-making process”.

“The planet and people must come first,” she adds.