By Mike Stimpson, Partner at Saltus
High Net Worth Individuals (HNWIs) are increasingly seeking out investments that are guided by Environmental, Social and Governance (ESG) principles. While this is especially true for younger investors – and has been for some time – ESG is becoming more important for older HNWIs too.
As part of our recent Saltus Wealth Index, we asked 1,000 people with investable assets over £250,000 if they invested in ESG funds, and 73% said yes. Not only is that a sizeable number, but it is up from 64% from when we asked the same question just six months prior.
But perhaps more interesting – and encouraging – than the overall rise in HNWIs that are actively investing in ESG, is the growth of ESG investment amongst older investors.
Six months ago, the number of HNWIs over 65 who said they invested in ESG was 24%– this figure has now increased to 42%, meaning the number of older investors who invest in ESG has almost doubled.
While the increase is encouraging, there is still an abiding view that an ESG strategy is insufficiently financially viable.
Of those HNWIs who have yet to invest in ESG, a third (32%) believe that they don’t generate sufficient returns, rising to 50% of over 65s. However, that may be a misapprehension. According to MSCI World Indices, equities that are aligned with the Paris Climate Accords have outperformed global equities over the last eight and a half years (to 31st March 2022).
There is also skepticism around the impact and robustness of ESG. Of all respondents that are yet to invest in ESG, when asked why, 22% said ‘I don’t think they make a difference’, 22% said ‘I don’t believe the reporting and analytics is robust’ and 20% said ‘sustainable investing is just hype’. One in seven (15%) said because it would be classed as ‘greenwashing’ and 15% said they don’t believe ESG investments are actually environmentally friendly. For one in five (19%) it is simply because climate change is not a priority.
However, while insufficient returns are a much bigger concern for older people, skepticism is actually much lower – just 17% said they don’t think they make a difference, down from 21% six months ago, and only 8% worry about them being ‘truly environmentally friendly’, down from 13%.
Furthermore, while many wealthy investors do still have their concerns about ESG investing, overall, there has been an increase in the perceived impact that it has.
According to our research, 74% of HNWIs feel that responsible investments make a tangible difference, up from less than half (48%) six months ago. Almost one in five (18%) say they think ESG makes a ‘big impact’ – up from 15%. And again, while overall, figures are lower amongst over 65s, the change from six months ago is much more significant – in our last report, just 22% of wealthy over 65s said they feel responsible investments make a tangible difference – now, that figure has more than doubled to almost half (48%).
It appears the increased visibility of ESG issues brought about by things like COP27 is helping move the needle. Despite the concerns mentioned above, more people of all ages are investing in ESG and this is a trend we expect to accelerate. It is clear from the data that you do not have to sacrifice returns to invest in a responsible way and we believe this message is beginning to resonate with people of all ages – even those who were previously sceptical.