Juliet Schooling Latter, research director at FundCalibre, gives her views on why ethical investing may be about to go mainstream.
There are four reasons we believe ethical investing may be about to go mainstream:
1. Consumer momentum is building
From David Attenborough’s Blue Planet II to Greta Thunberg’s school climate strikes and speech at the UN Climate Action Summit, there is no denying that public awareness of climate change and pollution are increasing. Not only this, but public tolerance of bad corporate practice, maltreatment of employees and communities, and many other environmental, social and governance issues is lower today than it has arguably ever been in the past. As the public and the consumer start to demand more from companies and governments, practice is starting to change.
2. Investor attitudes are changing
While common consensus is that millennials are driving demand for sustainable investments, a recent study by Schroders* has found that Generation X are equally – if not more – motivated to invest sustainably. 61% of Generation X (38-50 year olds) said they always consider sustainability factors when selecting an investment product, compared with 59% of millennials (18-37 year olds). Almost two-thirds of Generation X investors also agreed that all investment funds should consider sustainability factors and not just those designed as sustainable investment funds.
3. Underlying data trends strong
While 1.6% of all UK funds under management may not seem much, net retail inflows into ethical funds are on the up. In July they were £248 million** – a 50% increase on this time last year – and beating all other assets bar fixed income and mixed assets.
Looking more widely at the institutional market, more and more pension funds in particular are integrating ESG into their strategies.
According to EdenTree, ESG funds under management in the UK now total over £1.2 trillion. In addition, 46% of wholesale fund selectors across Europe now consider ESG factors for every one of their portfolios***.
4. More take up, more choice
All of these factors mean that more and more fund management companies are offering sustainable investment choices and are starting to incorporate ESG factors into their core investment processes. Professional investors are seeing that good practices generally result in good long-term investments. While there is a danger that some are simply ‘me too’ offerings, there are an increasing number of excellent ethical and sustainable funds from which investors can choose, that are generating excellent returns without sacrificing principles or our planet.
Tomorrow Juliet looks at four funds that could make clients money AND make a difference.
*Source: Schroders, April 2019, online survey of 25,743 people who invest from 32 locations around the globe. Research conducted by Research Plus Ltd.
**Source: Investment Association, 5 September 2019
***Source: Last Word Research, Q4 2018.
