Whatever the age an adviser's client is, there is no doubt that environmental, social, and governance investing is here to stay.
An estimated $2.4tn (£1.7tn) investment a year is needed to meet global temperature goals according to a UN report, and interest in ESG funds is already breaking new records.
According to Morningstar, ESG funds attracted inflows of €233bn (£200bn) during 2020, almost double the figure for 2019. The first quarter of 2021 has seen a further inflow of a staggering €120bn, representing 51 per cent of overall European fund flows.
Many other funds, including default funds for corporate pension schemes, also now offer more limited exposure to ESG strategies without reflecting this in their titles or promotional material.
Furthermore, a remaining disconnect between peoples’ support for ESG issues in their general lives and in their investments suggests massive untapped potential.
Recent Aegon research found that 95 per cent of people say they recycle and 59 per cent avoid single-use plastics, yet only 15 per cent note ESG investing as a way they are actively supporting a sustainable society.
This highlights an educational void that advisers need to help fill. The same survey, when asking what would help people make more sustainable investment choices, found just over half would like more information to help them understand ESG investing.
Catriona McInally, business development manager at Prudential, says: “There is still a camp out there that thinks ESG is a fad, but it’s a definite change. However, it can mean different things to different people, so advisers must make sure they have enough knowledge before approaching clients on the subject.
“They must also do sufficient due diligence and research and ensure that the funds they are promoting are meeting client needs, because people who feel strongly about ESG are going to pick up on inappropriate investments pretty quickly.”
A key point to grasp for all generations is the difference between ESG and ‘ethical’ investing, which focuses on shunning areas that run contrary to people’s beliefs and has traditionally involved an acceptance that inferior returns may have to be tolerated for the privilege.
As well as screening out inappropriate companies, ESG investing seeks out investments that have a positive long-term impact on the environment, society and the performance of the business because such organisations are more likely to survive for the long haul, have better brands and avoid lawsuits, and they are also likely to give better investment returns.
Anyone can be interested in ESG
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, says: “There is a growing awareness amid all age groups that investing with ESG is simply good risk management, as companies that are run in a sustainable way are more likely to have sustainable earnings.
