There has been a marked shift in attention towards governance among private investors, with the latest ESG Attitudes Tracker showing this as a top priority.
In the survey carried out by Research in Finance for the Association of Investment Companies (AIC), environmental issues have traditionally dominated investor interest in ESG as a whole but governance has caught up to tie with environment – 37% of respondents consider each to be important.
One investor said: “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.”
Transparency and disclosure was also flagged as the most considered ESG issue, in a further indicator of the rising importance of the ‘G’ of ESG, with 60% of respondents finding it important to consider when investing – higher than in any previous year.
Climate change fell to second place, being important to 54% of respondents, ahead of pollution (47%), and human rights (44%). Social (‘S’) issues continue to trail with 28% of respondents considering them important when investing.
Cooling sentiment
Overall, interest in ESG factors among private investors has fallen for the third year running, according to the ESG Attitudes Tracker.
The percentage of respondents considering ESG when investing is now 48%, marking a third successive drop from 66% in 2021, 60% in 2022 and 53% in 2023.
Some 43% consider themselves “fans” of ESG investing, down from 60% in 2021, 51% in 2022 and 50% in 2023.
Nick Britton, research director of the 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.”
Meanwhile, just 17% of respondents feel that ESG investing is likely to improve performance, down from 22% last year.
Previous iterations of the ESG Attitudes Tracker have revealed low levels of trust in ESG claims from funds and concerns about greenwashing. While the issues have not gone away, there are signs that 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%).
Britton added: “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.”
For the ESG Attitudes Tracker, Research in Finance carried out an online survey of 400 private investors and 202 intermediaries (financial advisers and wealth managers) conducted between 8 July and 31 July 2024.
A version of this article first appeared on Portfolio Adviser.
