Investors are feeling less positive about ESG investing than a year ago, according to a new survey by the Association of Investment Companies.
While three fifths of investors (60%) still consider ESG, this number was down from 65% in 2021.
The survey shone a light on the issue of trust within ESG, with more than half (55%) of those who don’t consider ESG admitting they are not convinced by claims from asset managers, double the number who said the same last year.
Furthermore, 58% of all respondents said they are not convinced by ESG claims from funds, up from 48% last year.
Investors were also found to be growing increasingly pessimistic about the performance of ESG, with the number of investors who believe ESG investing is more likely to improve performance shrinking from 33% to 22%, while those who expect it to have a negative impact on returns has risen from 20% to 25%.
Only 14% of respondents said they believe ESG investing is likely to be lower-risk than conventional investing, down from 20% in 2021.
Richard Stone, chief executive of the Association of Investment Companies, said that the shift in investor attitudes towards ESG reflects the changed investment climate over the past 12 months, but should also serve as a warning for the investment industry and regulators.
Stone said: “Trust is absolutely essential for ESG investing to grow and thrive. Investors need to have confidence in the claims made by investment products, and that in turn requires a clear and rigorous approach from the regulator – including, for example, robust and stringent requirements for a fund to be able to call itself sustainable.
“A majority of investors consider ESG when investing and over nine-tenths are looking to increase or maintain their allocation to sustainable investments. There is still appetite for investments that make a difference as well as making money, but funds’ ESG strategies and approaches need to be communicated clearly, factually and above all convincingly for investors to buy in.”
The AIC said environmental issues are considered the most important aspect of ESG by private investors, followed by governance and social issues. Climate change topped the list with 60% of investors considering it important, followed by transparency and disclosure (56%), pollution (55%) and preventing waste (46%).
When asked whether investors should engage or divest from companies with lower ESG credentials, 55% believe it is better to engage with companies, while a third (33%) said certain industries or activities should be excluded from funds with an ESG/ sustainable objective. These include companies that involve child labour, pornography, oppressive or controversial regimes, firearms and animal welfare violations.
However, the survey found widespread support for nuclear power as a legitimate “green” investment, with nearly three quarters (73%) of respondents agreeing that it should be part of the green energy mix.
The AIC said the cost of living crisis had also impacted investor appetite for sustainability, with 63% of respondents citing this as a factor.
Despite this, the industry body said nearly two fifths (37%) of investors are looking to invest more in sustainable investment over the next 12 months, with only 6% expecting to invest less.
