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Advised ESG investment rising

6 May 2020

Responsible investing is finding increasing favour among investors, despite a limited understanding of what it entails, new research for FE Fundinfo has shown.

According to the FE fundinfo 2020 Financial Adviser survey, 56% of advisers have increased the amount of client money they have invested in ESG funds over the past year. Yet, an even greater number (62%) believe that their clients do not understand what ESG investing involves.

Mikkel Bates, regulations manager, FE fundinfo, believes that the number of clients who have a deep understanding of the practicalities are fewer than the research suggests.

Bates said: “I think it may be an overstatement that 38% of advisers believe their clients have an understanding of what ESG involves. They may do in a very broad sense, but I doubt that many have considered the practicalities of how, for example, an environmentally-friendly investment may not be suitable, or vice versa. There is a huge difference between how ‘responsible’, ‘ethical’ and ‘sustainable’ investing is perceived and as an industry we must do more to provide clarity and transparency.”

Among those investors seeking out ESG opportunities, environmentally-friendly investments are the most popular option, followed by ethical investments. Companies with strong corporate governance, or a focus on social impact or Islamic finance seem to be less favoured, with only 8%, 4% and 3% of advisers saying this would be their clients’ primary ESG motivation.

The research also found that over a third (36%) of advisers believe growth in ESG is primarily investor-led, with just 7% stating that it stems from institutional pressure. Around 38% said it was a mixture of both investor demand and institutional offerings.

Looking ahead, over four fifths (82%) of advisers believe the number of ESG propositions will increase over the next year and more than half say they already offer ESG as part of their investment propositions with a further 37% planning to do so in the immediate future.

Bates added: “In the future, we will reach the state where ESG as a term will cease to be. It will be expected as the norm by investors and will be provided by fund managers as part of the status quo. Most funds will factor it into their propositions so that it will no longer be considered a specialist factor.”

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