Investors’ ‘love affair’ with environmental, social and governance (ESG) is “continuing to cool” according to research from the Association of Investment Companies (AIC).
AIC’s ESG Attitudes Tracker revealed the number of private investors who said they consider ESG when it comes to investing has dropped for the third year in a row.
According to the Tracker, less than half (48%) now think about ESG, compared to 66% in 2021.
Over two fifths (43%) of investors said they consider themselves “fans” of ESG investing, down from 60% in 2021, 51% in 2022 and 50% in 2023.
Only 17% of respondents felt ESG investing is likely to improve performance, down from 22% last year.
There has also been a shift in which ESG issues investors consider to be most important.
While environmental issues have dominated previous years, they now tie with governance issues, with 37% of respondents considering both to be equally important.
Social issues continue to trail, with 28% of respondents considering them as being important when investing.
Additionally, previous ESG Attitudes Trackers have revealed low levels of trust in ESG claims from funds, as well as concerns regarding greenwashing.
The introduction of the Financial Conduct Authority Sustainability Disclosure Requirements (SDR) rules to prevent greenwashing has not reduced this figure “but there are signs that at least they are not getting worse”.
Overall, 53% of those under the age of 45 consider ESG when investing, compared to 43% of those aged 65 or over.
Older respondents were also less likely than younger investors to associate ESG with positive words and phrases.
Less than half (48%) of those aged 65 or above associated ESG with being “responsible”, compared to 76% of those aged under 45.
AIC research director Nick Britton said: “Our ESG Attitudes Tracker shows that investors’ love affair with ESG investing continues to cool.
“That doesn’t mean they reject it altogether though. To extend the metaphor, they are thinking about the bits of ESG they like and those they don’t, and deciding if they want to make this a longer-term relationship.
“One interesting aspect of this year’s research is that almost all the governance issues have increased in importance for investors.
“Investors are increasingly savvy and recognise that governance is the bedrock of ESG investing: put another way, you need the G before you can have the E and the S.
“Though passions for ESG may have cooled, our research also suggests that love has not turned to hate.
“Few investors are actively hostile to ESG: for those who aren’t so engaged, it would be more accurate to describe them as sceptical, uninterested, or prioritising investment performance over ESG issues.”
To obtain these figures, AIC conducted an online survey of 400 private investors and 202 financial advisers between 8 July and 31 July.
Love Affair – A bit of hyperbole. Better description of ESG – Extremely Stupid Generalisation. Which is what many thought of it.