Rapidly expanding Fintech Plum is leveraging the popular notion of ESG investing to boost
its growth.
Plum is an FCA-regulated Artificial Intelligence system that comprehensively manages
customer money through automated savings and accessible investing. Founded in 2016, its
aim is to make the average person 20% better off over their lifetime. To do so, the app analyses spending habits and sets aside small sums of money every few days, in addition to
providing FSCS-protected stocks, shares, ISAs and GIAs.
The company has several well-established ESG funds available for investment, including ‘Clean and Green’, which contains shares of socially responsible firms. The ethical investment movement, where investment decisions are considered alongside the wish to address pressing societal issues and an awareness of the long-term impact of decisions, has been evident throughout Plum. The Clean and Green fund experienced a notable rise in allocation among new investors from 5.5% in Q1 of 2020 to 8.9% in Q4. Additional sustainable investment funds have also been one of Plum’s most requested offerings, with roughly half of their investors ranking an ESG-focused fund as their first or second choice of a broad range of fund options. It is, therefore, unsurprising that the firm has unveiled an extension of its ESG platform, adding a Growth Ethical fund from Vanguard and a Balanced Ethical fund from BlackRock to its portfolio.
ESG investing isn’t a new phenomenon, with the first ‘socially responsible’ fund launched in
1971. However, particularly following the later stages of the pandemic, so-called ‘green
investing’ has gained traction as investors look towards the post-pandemic future. Notably,
Plum has witnessed a new influx of investors who consider ESG an essential factor in their
investments. This has given rise to the ‘blended return’ strategy, a popular risk-reducing
approach where an investment meets both the target financial and positive impact return on
investment. This has caused many businesses to begin introducing ethical elements as
standard in all of their funds, rather than solely those with a socially responsible label.
Although, Which? Money highlights the key issues of ethical investing. The primary problem
is that jargon and unreliable data make it hard to choose investments that reflect individuals’ values. With most funds named ‘ethical’ and ‘sustainable’, it is hard for investors to know what this actually refers to. Additionally, the use of these labels isn’t regulated, and as such, firms have the potential to paint themselves in very different lights to reality. For example, Which? Money notes that Shell may be excluded as an ethical investment due to its involvement in fossil fuels. However, it could paint itself as an ESG investment on the basis of its activities to prevent climate change, despite contributing massively to environmental damage. Thus, there appears to be some confusion as to what constitutes an ethical investment, and it is looking likely that regulators will step in to combat this.
This year is expected to be a big one for Plum. The company is set to release its first pension product, the Plum SIPP, followed by single stocks and crypto-assets. Subsequently, the company expects to have 250,000 investors on its platform by the end of 2021. However, the wide criticism of green investing, mostly surrounding the lack of common taxonomy and standards, could stunt Plum’s success in the socially responsible investment sector. Investors are increasingly questioning what ‘positive impacts’ of investment really are, as many firms are claiming varying degrees of social impacts under this term.
Resultantly, critics are calling for both investors and providers to bolster the sector. It will
therefore be interesting to observe how Plum deals with these criticisms and reacts to any
potential new regulation.