Parameters: Will ESG investing remain a specialist area?

27 September 2023

In a recent Parameters survey, we asked you whether you thought ESG investing would remain a specialist area or would it go mainstream. Here’s what you said. 

Looking ahead, paraplanners expect ESG to remain a specialist area, despite widespread growth of the sector over the past decade. More than half (53%) of paraplanners told Professional Paraplanner they do not expect ESG to become so widely adopted that the need for specific ESG products disappears.

One paraplanner commented: “ESG will remain a certain specialised focus instead of becoming mainstream – at the end of the day, it’s performance and risk which stand as core pillars.”

Another echoed the sentiment: “I think this will come down to performance and clients will only accept ESG in their investments if they can also provide good performance.”

However, a third of respondents said they do believe the industry could reach a point where the need for specific products will disappear.

“I think as a society, things are gearing that way and there is a bigger effort to see more sustainability in every aspect of our lives so yes, I think this will happen,” one respondent explained.

For another paraplanner, there is the expectation that a certain amount of every portfolio will need to contain ESG, in addition to the 100% ESG portfolios. “Ultimately, all companies will be following some kind of ESG process in their business,” they added.

The positive outlook comes despite the ESG investment sector struggling in 2022. The sector saw its first net outflows since 2011, as the Ukraine war, volatility in the financial markets and growing political hostility against the industry saw investors shy away from ESG.

Half of paraplanners (51%) told Professional Paraplanner that their firm had experienced a drop in sustainable investing over the past year.

One attributed the performance of the energy sector as a key driver.

“I believe momentum has been lost simply because ESG investing is now well established but I also think the large profits realised by the big energy companies have made investors question whether they should completely abandon such investments,” they said.

Another agreed that poor investment performance has meant that clients are looking for increased growth and many believe this can’t be achieved with ESG funds.

Greenwashing was also cited as a potential barrier, with companies exaggerated claims making it difficult for clients to determine where to invest.

As one respondent explained: “ESG was a buzz but when more and more people saw the greenwashing involved, interest declined.”

Another said: “It is all very well for clients to believe in ESG investing but when this comes at the expense of returns it is a different matter which happened last year. There is also the issue of ‘Green washing’ which has added to client scepticism.”

One respondent blamed a lack of government push: “Government policy and press coverage are geared to making us think that there is nothing wrong and that we are not in the midst of a climate crisis.”

One paraplanner said the landscape remains a game of two halves: “The truly ethical clients have remained invested and are comfortable with the recent volatility as the funds align with their views. However, now that the funds are not producing the same level of returns it has put off new investors from wanting to invest within this area especially whilst the markets are experiencing losses across the board.”

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Professional Paraplanner