What investors prioritise over ESG

11 November 2021

Despite nearly two-thirds of investors (65%) saying they consider ESG, most prioritise other factors when choosing an investment, new research from the Association of Investment Companies has shown.

The leading priority for investors when choosing an investment was the performance record, followed by fees and charges. In third place was the fund manager’s reputation, with the asset management company’s reputation coming in fourth place. Assessing an investment’s ESG ranked in fifth place, said the AIC.

ESG considerations were found to be more important among women than men and more prevalent among those aged under 45.

The AIC said although there has been growing awareness around ESG, over a third (35%) of investors don’t consider it at all when making investment decisions. Among that group, 57% agreed that they prioritised performance over ESG issues, while 27% cited a lack of trust in asset managers’ ESG claims. A further 22% of those who don’t consider ESG said they simply hadn’t thought about it.

The difficulty of researching ESG-focused investments was also seen as a barrier to wider ESG investing, with 57% of respondents noting this as an issue.

The AIC research also showed divided opinions on the impact of ESG on performance, risk and charges. A third (33%) of investors believe investing with ESG considerations in mind is likely to improve performance, but 20% think it is likely to have a negative impact and 29% do not expect it to have any impact.

Views on risk are equally mixed, with 20% deeming ESG investing to be lower-risk, while 23% expect it to be higher risk and 43% believe it will have no impact.

However, only 10% of investors believe ESG investing will mean lower charges, with 43% expecting it to lead to higher charges and 36% expecting no change.

The AIC said investors were also more likely to select investments that use either positive or negative screening rather than ‘ESG integration.’ The most popular types of ESG funds were those that actively include investments that have positive effects on the environment or society.

Annabel Brodie-Smith, communications director at the Association of Investment Companies, said: “ESG has never been a hotter topic within the investment industry, but this research provides a reality check by showing how much it matters to the average investor.

“Private investors do care about ESG issues, but some care more than others, and there is still a lot of confusion about funds’ ESG claims. Investors also have different priorities when it comes to ESG, which are complicated and sometimes competing.

“This year we have launched ESG disclosures on the AIC’s website, so that investors can look up the strategies and policies of investment companies. These initial disclosures now cover 76% of the industry by assets and help investors to identify investment companies that align with their values and priorities. As company activity, regulatory requirements and investor demand evolve, we will work with the sector to develop these disclosures to ensure they provide investors with useful information to guide their decision making.”

Professional Paraplanner