Demand for ESG investing continues to decline, with investors concerned about performance and greenwashing, according to the Association of Investment Companies.
The annual ESG Attitudes Tracker showed the number of private investors who say they consider ESG when investing has dropped for a third year in a row to 48%. This compares to 66% of investors in 2021, 60% in 2022 and 53% in 2023.
The AIC said just over two-fifths of investors (43%) consider themselves ‘fans’ of ESG investing, down from 60% in 2021, 51% in 2022 and 50% in 2023.
The findings of the survey also revealed growing pessimism around investment performance. Less than a fifth (17%) of investors feel ESG investing is likely to improve performance, down from 22% last year.
Investors also continued to display low levels of trust in ESG claims from funds, with 61% stating they are not convinced by ESG claims, marginally lower than 63% who said the same last year. Meanwhile, 67% said they continue to be concerned about greenwashing, similar to 68% a year ago.
Nick Britton, research director of the Association of Investment Companies, said: “Our ESG Attitudes Tracker shows that investors’ love affair with ESG investing continues to cool. That doesn’t mean they reject it altogether though. To extend the metaphor, they are thinking about the bits of ESG they like and those they don’t and deciding if they want to make this a longer-term relationship.”
Britton said the findings also showed growing emphasis on governance issues for investors. While environmental issues have been dominant in previous years, they now tie with governance issues, with 37% of respondents considering each to be important. Social issues continue to lag with 28% of respondents considering them important when investing.
Transparency and disclosure is now rated the number one ESG issue, with 60% of respondents finding it important to consider when investing, higher than in any previous year. Climate change has fallen to second place (54%), followed by pollution (47%), human rights (44%) and waste / preserving resources (39%).
Britton said: “Investors are increasingly savvy and recognise that governance is the bedrock of ESG investing: put another way, you need the G before you can have the E and the S. Though passions for ESG may have cooled, our research also suggests that love has not turned to hate. Few investors are actively hostile to ESG; for those who aren’t so engaged, it would be more accurate to describe them as sceptical, uninterested or prioritising investment performance over ESG issues.”
The survey showed that investors continue to associate ESG with positive words, with 66% associating it with being “sustainable”, while nearly three fifths (59%) opted for “responsible.” By contrast, 26% associated ESG with being “woke” and 9% described it as “pointless.”
Separately, the AIC said child labour, pornography and oppressive regimes remain the top three red flags for investors when considering investments to exclude or try and avoid, while 25% of investors fully exclude tobacco from their portfolios. However, 50% of investors believe that exclusion is not the answer and it is better to engage with companies to try and influence them.
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