ESG investing trends: The rise of sustainability
The trend for more responsible investment is gaining momentum.
While there have always been investors keen to match their money with their morals, sustainable and ESG investment remained a somewhat niche interest up until a few years ago. This is no longer the case – advisers state that over half (56%) of their clients are now open to this approach . In fact, they predict that 30% of clients’ assets will be invested in a responsible way within five years – up from just 12% today.
The move towards a more sustainable approach was initially led by institutional investors, such as pension funds and investment foundations. As wider society has become much more conscious of environmental and social issues, retail investors have come on board too. The coronavirus pandemic may accelerate this trend further – 54% of advisers state they will recommend more ESG strategies to their clients as a result of the crisis1.
“Clients are more aware of the impact reduced human activity has had on the planet and are keen to support businesses that have an ESG focus.”Respondent to ‘How the advice sector is responding to the coronavirus crisis’
How big is the ESG and sustainable market?
The retail investment industry has reacted to this growing trend and there are now 167 sustainable and ESG funds available in the UK today. This represents a rise of over 100% since the beginning of 2016 – meaning investors now have genuine choice. In addition to ‘traditional’ ethical funds that focus on exclusions, there are a wide variety of portfolios that fully integrate ESG analysis into the investment process and funds which aim to make a measurable social and environmental impact. Passive options are also becoming more common and DFMs are looking to introduce ESG-focused model portfolios.
1 FundsNetwork IFA DNA Report: Sustainable investing and the advice sector. April 2021.
“Lots of my clients say...it sounds like the right thing to do”Respondent to ‘Sustainable investing and the advice sector’
What is the demand for ESG investing?
Demand has grown significantly over the last five years resulting in huge growth in ESG assets under management – up 150% over the period. Interestingly, women appear to be at the vanguard of more mindful investing. Over half of advisers in our Financial Power of Women survey said that women tend to be more interested in investing responsibly than men. In a separate survey, advisers also identify younger clients as those driving demand1.
The climate emergency and other environmental issues mean it is highly likely that the focus on living life in a more sustainable way is here to stay. We therefore anticipate that the surge in interest in ESG investing will only grow further over the months and years ahead.
ESG Funds - Assets Under Management (£ bn)
Source: Morningstar, figures to 31 December 2020, includes UK domiciled funds identified as sustainable within all IA sectors
You can find more about the growth of sustainable investing in our Adviser Guide.
Important Information - Please note that the value of investments and the income from them can go down as well as up so your client may get back less than they invest.
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