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Demand for ESG investing will increase, say 89% of advisers

A substantial majority of financial advisers and discretionary fund managers (DFMs) have bought into the broad concept of ESG investing, but confusion remains over terminology, research and processes, according to a survey from the Association of Investment Companies (AIC).

Nearly nine-tenths of financial advisers (89%) expect demand for ESG investments to increase over the next 12 months. Only 2% thought it would decrease slightly and not a single respondent said it would decrease significantly.

The vast majority of financial advisers are interested in ESG investing and have already begun researching it, with 23% of financial advisers considering themselves early adopters and a further 48% stating that they had recently become more knowledgeable about it. Among DFMs, these figures were higher, 34% and 51% respectively. Only 3% of financial advisers and 5% of DFMs said that ESG investing was not of great interest to them.

Personal experience of ESG investing among financial advisers and DFMs

  Financial advisers DFMs All respondents
I would consider myself an early adopter of ESG investing and have been researching this area / discussing ESG investments with clients for some years now 23% 34% 28%
I have recently become more knowledgeable about ESG investing and how to make this part of the offering to clients 48% 51% 49%
I have recently become interested in ESG investing and have started to research this area 18% 8% 14%
I have not thought about ESG investing too much but am planning to start researching in the future 8% 2% 6%
ESG investing is not of great interest to me 3% 5% 4%

Source: AIC/Research in Finance. Percentages are % of respondents who agreed with each statement. Respondents could select only one statement.

The majority of financial advisers have bought into the concept of ESG investing, with nearly four in five (79%) agreeing that investments should make a positive difference as well as a financial return. Most advisers also agreed with the statements that ESG investing will have a positive impact on the environment (69% agreed) and a positive impact on society (60% agreed). These figures were similar among DFMs.

Most firms are now offering an ESG investment proposition: 74% of financial advisers and 86% of DFMs said their firms already offered one, while a further 23% and 14% respectively said their firms were looking to do so in future.

ESG and performance: “Not a conversation around compromise anymore”

The AIC research shows the view that ESG investing could mean worse performance has been largely quashed by good returns from ESG funds in recent years, though a minority still think it might hit investors in the pocket at some point.

Among financial advisers, 40% said that ESG investing is likely to lead to better performance, with only 14% feeling it would lead to worse performance. Those numbers were 56% and 18% among DFMs.

One adviser commented: “ESG portfolios stood up probably better than non-ESG portfolios through last year. So it’s not really a conversation around compromise anymore. It’s very much about thinking positively about investing like that. So, do you want to save the planet or not? Do you want businesses to be run more socially and ethically in a responsible way? It’s all-encompassing, that sort of stuff. It’s just how we should be investing our money.”

But ESG could mean higher charges

However, views on charges were more negative, with 42% of advisers and 49% of DFMs expecting ESG investing to mean higher charges, and only 1% and 5% respectively thinking it would mean lower charges.

Related to this, advisers are still not wholly convinced by the idea of passive funds for ESG. A majority (62%) agreed that ESG investing is better suited to active funds, and less than half (42%) agreed that ESG investing could be achieved through passive funds. DFMs strongly prefer active options, with 80% agreeing that ESG investing is better suited to active funds.

When it comes to risk, the largest share of respondents (55% of financial advisers and 40% of DFMs) believed that ESG investing would have no overall impact on risk. However, about a third of both financial advisers (33%) and DFMs (31%) worry that ESG investing will mean higher risk.

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