Why we’re all ESG investors now.

Whilst investors are increasingly prioritising socially responsible investments, fund managers are getting in on the act too.

Interest in ethical investing has grown dramatically in recent years and the recent regulatory push by the government has also helped to drive the pace of development in socially responsible investing.

The latest Investment Association figures show that socially responsible investment funds saw a net retail inflow of £1.6bn in March, bringing funds under management to £66bn.

Research by Close Brothers, says that investors with an average of £320,000 invested are prioritising responsible investment over ‘traditional’ returns.

Young investors in particular are increasingly prioritising environmental, social and corporate governance (ESG) factors when making investment decisions This is shown by a new survey from Montfort Communications and Boring Money, a financial news website. According to this, 63% of 18-34-year-olds say they would select a fund manager based on its approach to ESG. That number falls to 17% for the 55-plus group. 78% of 18–34-year-olds also say ESG affects their investment choices. That falls to 67% among the 35-54 age group and about a third of the 55-plus group.

The research from Close Brothers’ also shows that investors clearly do not think that they will sacrifice financial returns by investing sustainably, with as many as 85% believing that ESG investing will either improve, or provide the same returns, as traditional investing.

However, despite the focus on ESG investing, the research shows that investors remain confused when it comes to the investment terminology, particularly older investors.

For example, only 18% of investors know the term SRI (socially responsible investing) whilst three in four are not confident that they understand fully terms such as ‘impact investing’, ‘ethical screening’ and ‘greenwashing’. The research did however find that younger investors are more familiar with the terms, whilst those with financial advisers were more likely to understand them. So, the answer could well be to speak to a financial adviser, particularly as doing your own research into ESG funds that meet your criteria is time consuming and hard work!

However, the reality is that most funds are becoming ‘greener’ anyway, partly to meet this surge in demand, particularly from younger investors, but also because fund managers have to follow the regulations.

Across the globe, ESG reporting is becoming mandatory for asset managers – and the idea that all managers have ESG responsibilities is now standard. Most big-name fund managers can now point you to their ESG overlay and their stewardship department for example.

The upshot is that ESG funds are becoming mainstream. It will soon be getting to the point where, whether you buy an ESG fund or a non-ESG fund from a major fund manager, you will still be buying one with some kind of an ESG overlay. This will certainly help those who want to invest responsibly but don’t know where to start.

The other way to start is to talk to a qualified financial adviser with specialist knowledge and experience of ESG investing. So, if you are looking to invest ethically and responsibly, talk to us today.

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