Investors increasingly sceptical on asset management ESG claims

The study revealed that a majority (58%) of respondents are “not convinced by ESG claims from funds”, up from 48% last year.

Among the 402 respondents, 60% consider ESG when investing, but this is down from 65% in 2021. Of those that do not consider ESG, 55% say they are not convinced by ESG claims from asset manager, more than double last year’s 27%.

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Meanwhile, investor expectations of ESG performance and risk have significantly declined. Only 22% of respondents said they expect ESG investing to improve performance, compared to 33% last year, while the number expecting it to have a negative impact increased from 20% to 25%.

Those viewing ESG as lower risk than conventional investing has fallen from 20% to 14%, while those who view it as higher risk has risen from 23% to 29%.

Additionally, 45% of respondents view ESG investing as having higher charges, compared to 5% who believe the opposite.

Nevertheless, 37% of investors still say they are looking to invest more sustainably over the next year, compared to 6% expecting to invest less.

Exclusion

Looking to the debate of engagement versus divestment, a majority (55%) said that “exclusion is not the answer, and it is always better to engage with companies”, compared to 33% that support excluding certain industries from funds.

When asked about which investments they would fully exclude from their portfolios, investors selected child labour (53%), pornography (43%), oppressive or controversial regimes (40%), firearms (34%), animal welfare violations (32%) and tobacco (32%).

Only 13% of investors would fully exclude fossil fuels, while a further 36% of them said they “try to avoid” investing in them. Meanwhile, 73% of respondents supported nuclear power as a green investment, with only 10% disagreeing.

Issues

Of the three issues in ESG, environmental issues were seen as most important by investors, rating it a 3.5 on average on a scale of 1 to 5. This compares to governance issues, that were rated a 3.2, and social issues, that were rated a 3.1.

Climate change is seen as the most important issue within this, with 60% of respondents picking it as important. This compares to transparency and disclosure at 56%, pollution at 55%, preventing waste at 46% and human rights at 41%.

Pollution has seen the biggest increase in salience compared to last year, likely following the dumping of human waste on UK beaches this summer.

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Current events were cited as one reason for the decline in support for ESG investing, with 63% of respondents saying that the cost of living crisis has made sustainability less of a focus in 2022.

However, other events were murkier, with 22% saying the Russian invasion of Ukraine had made them more likely to invest in sustainable funds, compared to 18% who said it made them less likely to do so. This is comparable to market falls, with 17% more likely to invest in sustainable funds, but 18% less likely.

Richard Stone, chief executive of the AIC, said: “Our ESG research inevitably reflects the changed investment climate over the past 12 months, but it also carries an important message for the investment industry and for regulators. Trust is absolutely essential for ESG investing to grow and thrive.”

He said that investors needed to have confidence in the ESG and sustainability claims made by the investment products and wealth managers, but for that to happen there needed to be “a clear and rigorous approach from the regulator, including, for example, robust and stringent requirements for a fund to be able to call itself sustainable”.

Looking at the results he said there was still an appetite for ESG-focused investing but the portfolios aims “needed to be communicated clearly, factually and above all convincingly for investors to buy in”.