Advisers and wealth managers are frustrated by greenwashing and their trust in sustainability claims from funds has not improved, according to the ESG Attitudes Tracker from the Association of Investment Companies (AIC).
Whereas last year only 1% of respondents to the AIC’s survey said they “completely trust” sustainability claims from funds, that figure is now 0%. On a scale of 1 to 5, most respondents (51%) rate their level of trust as ‘3’, indicating limited trust, according to the survey conducted by Research in Finance.
On greenwashing, one discretionary fund manager (DFM) commented: “It is dreadful and I think it is going to get worse. It is so bad. It infuriates me. I end up arguing with friends who work in other parts of finance.”
An adviser commented: “I am concerned about [greenwashing] because to recommend something on the basis that it meets my client’s desires for investment and then to subsequently find out that it didn’t is a dangerous position for me to be in.”
ESG ratings are not necessarily a panacea, with less than a fifth (19%) of respondents trusting them, and only 24% of respondents agreeing that they help to alleviate greenwashing concerns. One respondent remarked: “‘There needs to be more industry standard regulations on ESG ratings. It’s a minefield.”
Despite these concerns, the percentage of advisers and wealth managers recommending sustainable funds has remained buoyant at 91% (the same as last year). Sustainable funds account for 17% of clients’ portfolios on average, versus 16% in 2022.
Most intermediaries (72%) expect demand for ESG investing to increase over the next year, though this percentage has fallen compared to previous surveys. In 2021, 91% of intermediaries expected demand to increase and in 2022, 80% of intermediaries did.
One adviser said: “A lot more of my clients are asking about ESG investments and I am attending more webinars and seminars on ESG to increase my knowledge and understanding around the area to be able to advise clients effectively.”
Intermediaries’ self-rated knowledge of ESG has improved, especially among DFMs, 47% of whom rated their knowledge as very good or excellent, up 16 percentage points from last year’s survey. Among advisers there was a more modest improvement, with 31% of respondents rating their knowledge as very good or excellent, up 4 percentage points.
A DFM commented: “I have seen growing evidence that integrating ESG factors into investment analysis can potentially lead to better risk-adjusted returns. Further, regulations around sustainability disclosures and practices are rapidly evolving. Proactive companies that address ESG issues are likely better prepared for regulatory changes than others.”
Does ESG help or hurt performance?
DFMs and advisers are split on whether ESG investing is more likely to help or hinder performance. Among DFMs, 41% think it is more likely to help performance, and 29% that it is more likely to be a hindrance; but among advisers, the pattern is reversed, with 24% saying it will help and 34% hinder.
Taking all intermediaries together, the percentage of respondents expecting a performance boost from ESG investing has reduced sharplyfrom 47% in 2021 to 32% in this year’s survey.
One adviser said: “It is a difficult one because a couple of years ago I would have said that there is strong evidence that being more thoughtful about your investments along the ESG lines can deliver better returns… I know that is a little bit more of a difficult case to make because the last couple of years have not been positive for many of the stalwarts of ESG investing.”
AIC comment on the research
Nick Britton, Research Director at the Association of Investment Companies (AIC), said: “Our ESG Attitudes Tracker shows that advisers and wealth managers remain deeply sceptical about sustainability claims from funds, even as they expect demand for these strategies to increase.
“It’s good to see respondents to the survey becoming more confident about ESG, and it’s clear that many have been working hard to build their knowledge. However, conversations with clients remain challenging because of varying levels of interest and understanding, confusion over key terms and concepts, and even the politicisation of some ESG issues.”
