The number of private investors who say they consider ESG when investing has dropped for the third year in a row, according to the annual ESG Attitudes Tracker from the Association of Investment Companies (AIC).
The percentage of respondents considering ESG is now 48%, having fallen from 66% in 2021, 60% in 2022 and 53% in 2023, according to the study conducted for the AIC by Research in Finance1.
Just over two-fifths of investors (43%) consider themselves “fans” of ESG investing, down from 60% in 2021, 51% in 2022 and 50% in 2023.
Investors are also more pessimistic about performance. Only 17% of respondents feel ESG investing is likely to improve performance, down from 22% last year. One investor commented: “I want to do good, and I understand ESG from that point of view, but it has to be a balance between that and getting returns. That is why we invest.”
Shift towards the ‘G’ of ESG
There has also been a shift in the ESG issues investors consider to be important. While environmental issues (the ‘E’ of ESG) have been dominant in previous years, they now tie with governance (‘G’) issues, with 37% of respondents considering each to be important. Social (‘S’) issues continue to trail with 28% of respondents considering them important when investing. According to one investor: “If it hasn’t got good governance, you really shouldn’t be investing in it. If the management are poor, then it’s going to lead to a disaster.”
As a further example of the rising importance of the ‘G’ of ESG, transparency and disclosure is now rated the number one ESG issue, with 60% of respondents finding it important to consider when investing – higher than in any previous year. Climate change has fallen to second place, being important to 54% of respondents, while pollution comes third (47%), human rights fourth (44%) and waste/preserving resources fifth (39%).
Nick Britton, Research Director of the Association of Investment Companies (AIC), 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.”
Further findings of this year’s ESG Attitudes Tracker can be found below. For more details on the research, please contact the AIC’s Communications team using the details at the end of this release.
Is ESG ‘woke’?
Though the survey revealed a decline in enthusiasm for ESG, there was little sign of a US-style backlash against it.
Respondents were more likely to associate ESG with positive words and phrases than with negative ones. About two-thirds (66%) of respondents associated ESG with being “sustainable” (66% of respondents), while nearly three-fifths (59%) opted for “responsible”. By contrast, just over a quarter (26%) associated ESG with being “woke” while 9% found it “pointless”.
In a further sign that a full-blooded ESG backlash has not yet reached the UK, 71% felt comfortable discussing their thoughts and opinions on ESG with friends, family or colleagues, and 55% felt ESG was no more controversial than other topics within investment.
Greenwashing and trust: sentiment stabilises
Previous waves of the ESG Attitudes Tracker have revealed low levels of trust in ESG claims from funds, as well as concerns about greenwashing. These issues have not gone away, but there are signs that at least they are not getting worse.
The number of respondents who are not convinced by ESG claims from funds dropped slightly to 61% from 63% last year. Meanwhile, two-thirds (67%) said they were concerned about greenwashing, similar to last year (68%). One investor said: “I feel like I would assume every company is greenwashing to promote themselves. And as a lay person, you wouldn’t know whether they were doing what they are saying.”
Exclusions
Child labour, pornography and oppressive regimes remain the top three red flags for investors when considering investments to exclude or try and avoid. A quarter of investors (25%) fully exclude tobacco from their portfolios, while a further 31% try to avoid it.
About 50% of investors believe that exclusion isn’t the answer and it is better to engage with companies to try and influence them. However, 34% think there are certain industries or activities that should always be excluded from funds with an ESG or sustainability objective. These numbers are broadly similar to previous years.
Age differences
There are clear age differences when it comes to attitudes to ESG. For example, 53% of those aged less than 45 consider ESG when investing, compared to 43% of those aged 65 or above.
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 – a difference of 28 percentage points. By the same token, nearly a third (31%) of those aged 65 or above associated ESG with the word “woke”, compared to just 13% of those under 45.
