A survey suggests fewer investors are interested in ESG (environmental, social, and governance) investing when compared to a few years ago. Yet, that doesn’t mean it should be an option you dismiss right away.
ESG investing involves considering other factors alongside potential financial returns when making investment decisions. It can encompass a wide range of areas across its three pillars, such as:
- Environmental: Carbon emissions, resource usage, and waste management
- Social: Labour practices, customer satisfaction, and human rights
- Governance: Business management, risk management, and resilience.
As a result, ESG investing might provide you with a way to align your investment decisions with your personal values. That doesn’t mean you overlook the financial reasons for investing and it’s still important to consider your risk profile when making decisions.
It is possible to incorporate ESG criteria and take a hands-off approach to investing. There are many investment funds with an ESG focus to choose from, that would invest your assets in line with its goals.
Less than half of investors are considering ESG issues this year
According to a report in FT Adviser, the number of investors who are interested in ESG criteria has fallen for three consecutive years.
Just 48% of investors are considering ESG this year, compared to 53% in 2023. The figure was 66% in 2021.
There are several reasons why interest in ESG could be falling. One challenge is that it can be difficult to assess how well an investment or fund aligns with your personal views and there have been claims of “greenwashing” – where a company or other organisation makes misleading claims about how environmentally friendly they are.
For some investors, this might put them off exploring ESG options.
The current economic climate is also likely playing a role. Following a period of high inflation, investors may be prioritising higher returns to a greater degree when compared to just a few years ago.
Indeed, the FT Adviser report noted that performance was a particular concern. Just 17% of the investors surveyed said ESG was likely to improve returns, compared to 22% last year. However, the report also added that while ESG investing might deliver lower returns in the short term, evidence doesn’t suggest this is the case over the long term.
Interestingly, the survey also revealed that while some investors might be drawing away from ESG investing, they still have positive feelings about it. There’s also a growing focus on the governance pillar, which 60% of respondents said they find important when investing.
Nick Britton, research director of the Association of Investment Companies, which carried out the survey, said: “One interesting aspect of this year’s research is that almost all governance issues have increased in importance for investors.
“Investors are increasingly savvy and recognise that governance is the bedrock of ESG investing; put another way, you need the G before you have the E and the S.”
The downward trend of ESG investing doesn’t mean it isn’t right for you
While the survey suggests fewer investors are using ESG factors when making investment decisions, that doesn’t mean it can’t still be right for you.
It’s important to consider what your investment goals are rather than following a trend. If ensuring your financial decisions reflect your ethics is important to you, ESG investing could still be a valuable option.
Choosing ESG investing doesn’t mean you have to accept lower financial returns either. Indeed, there have been instances of ESG investments outperforming traditional benchmarks. It may be possible to balance your financial goals and values.
Of course, you cannot guarantee investment returns, and it’s still important for your decisions to reflect your goals, investment time frame, and risk profile. Choosing an investment opportunity that aligns with your values without considering the other areas could mean you make a decision that isn’t right for you.
Do you want to talk about ESG investing?
If ESG investing is something that interests you or you’d like to review your existing investments, we could help you balance your financial goals and values. Please contact us to arrange a meeting.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
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