Investors ignoring ESG claims in the hunt for returns, report suggests
Green credentials and ESG claims are failing to win over investors as money managers and retail punters hunt for firms with healthy bottom lines, a new survey has suggested.
In a new temperature check of investor sentiment across the UK, communication agency MHP found that just one per cent of investors said environmental, social and governance (ESG) concerns were top of their list when making decisions around whether to back companies.
Just over half of professional investors surveyed by MHP said ESG was an “important factor” when making decisions but 16 per cent wrote it off entirely when weighing up where to put their money. Among amateur retail investors, some 45 per cent said it was not an important factor when decision making.
Conversely, some 39 per cent said the health of the bottom line was the top driver of their investment decision making.
The numbers paint a troubling picture for the importance for ESG credentials after a turbulent few years in which investors have been hammered by volatility on the markets.
Experts said today that investors were failing to tie ESG concerns to the performance of their investment over the longer term.
“It is likely that many retail investors still don’t understand that ESG concerns are intrinsically linked with these financial priorities over the long term. Added to this, there is some ‘ESG fatigue’,” said Laura Houet, global co-head of ESG at law firm CMS.
“It is a broad term that has been used so widely within investment funds that, while we still do not have regulation to more identify specific strategies, it risks becoming a bit of a catchall term for investors that they struggle to apply to their own investments.”
The acronym dominated debate in the City over the past decade but concerns have spread over the veracity of many claims and rampant ‘greenwashing’ by businesses.
Regulators globally have looked to tighten the guardrails around ESG claims, with the FCA drawing up rules to flush out unsubstantiated claims from the market.
However, the UK Sustainable Investment and Finance Association (UKSIF) told Morning Wire today that the backing for ESG credentials among professional investors showed there were reasons to be positive.
“This report finds that more than half of professional investors think ESG is an important factor in decision making – more than three times the number who don’t,” UKSIF chief James Alexander said.
“That’s because it is extremely difficult for investors to make the best decisions for their clients and savers without looking at the full range of material environmental, social and governance (ESG) risks.”