Responsible investing, socially responsible investing, ESG, Ethical investing, these are all terms you will have seen us use this year in our blog content. You may have also seen these terms in the press lately, as the impact of the Covid-19 pandemic has really accelerated these issues and brought them to the forefront.
Research shows that demand for Environmental, Social and Governance (ESG) and sustainable investment focused portfolios has hit record levels.
As we have stated before, this is something that we believe this is going to become a long-term trend and our aim with our blog posts on this area is to help you understand what this is and keep you updated with movement in this area.
Ethical investing has been a traditionally niche market with limited options however with ESG (environmental, social and (corporate) governance) investment become ever more prevalent and the Covid-19 pandemic, there now seems to be turning point for accelerating client interest in this area.
Brooks Macdonald recently conducted a survey in which they asked 188 advisers whether they thought the current pandemic would speed up a transition to a greener, more equitable society.
The response was an overwhelming yes with 90% responding positively.
Global fund data provider FE fundinfo, also did some research and found that 55% of IFAs increased the amount of client money in ESG investments in 2019 and that more than four-fifths of advisers expected demand for ESG options to rise in the coming year.
Many ‘ethical’ or ‘ESG’ screened funds now outperform the more traditional (aka ‘non ethical’) funds and portfolios. Morningstar data examined almost 5,000 Europe-based funds and found that around 60% of sustainable funds have done better than their non-ESG peers over one, three, five and 10 years.
The focus on ‘greener’ investments may suggest that it’s just the ‘E’ in ESG that is currently in the spotlight however if you look at the impact of the Covid-19 pandemic and even the recent Black Lives Matter movement, these also put the spotlight on the ‘S’ and ‘G’, putting diversity and social equality (including employment conditions and healthcare) up at the forefront and may make people think about aligning their investment preferences (i.e. investing into companies which support diversity and equality) with their own personal views.
Brooks Macdonald also did some research last year in which 800 individuals were surveyed on their views on responsible investing. One of their findings was that interest was high across all age groups, however, it was the individuals under 40 that were the most engaged with this with 94% saying they already used a responsible investment solution or would be interested in doing so.
Responsible investing therefore gives us an opportunity to connect with the next generation of clients. As it’s the future generations who will feel the benefit of living on a ‘greener’ planet.
We have noted recently in our ESG blogs that we expect the regulators to hone in on ESG matters and that assessing client’ sustainability preferences be a key conversation topic when discussing investments.
The FCA has already indicated that sustainability risks should be appropriately considered in the advice process that investment objectives should include the understanding of clients’ responsible investing.
Hopefully, this is further ‘food for thought’ for you to start thinking about how can your personal views and beliefs align with your investment strategy?
We are already actively discussing ESG issues with clients on a regular basis and will continue to develop these conversations and use the feedback in our processes within the business.
Please keep an eye out for more posts on these themes in the future, this is something we are committed to as a business and to help our clients understand.
Andrew Lloyd
16/09/2020