The rise of ethical investing is set to rally an "army" of new investors who “never knew they were investors”, experts have predicted.
Speaking at a Morningstar briefing this week (February 18), Andy Pettit, director of policy research at the data analysis company, said environmental, social and governance investing (ESG) was a “catalyst to engage a whole army of new investors” who “never knew they were investors”.
Mr Pettit said the industry needed to take the increased awareness surrounding environmental issues to engage people who did not previously look at investing as something for them and explain to them how their money could impact the world.
Hortense Bioy, Morningstar’s director of passive funds and sustainability, agreed. Speaking at the same event, she added: “2019 was the year of ESG and sustainability more broadly.
“It’s talked about by all businesses globally and, in the asset management world, it’s definitely at the top of fund houses’ agendas.”
Ms Bioy thought the asset management industry could capitalise on this. She said: “There is a section of investors who get left behind when talking about risk and returns and asset allocation.
“But if you start talking about ESG then you can start making them feel better about their investing. There’s a big area of the market who are not investing for the future, and the rise of ESG can help advisers ask different questions that resonate better with this group.”
Ms Bioy also noted certain demographics who typically were less likely to invest — such as women and ‘millennials’ — were also likely to be more enticed by ESG investing.
ESG investing takes into account ESG factors alongside financial markers in the investment decision-making process.
It has become a more commonplace part of the global investment space in recent years and Morningstar data shows net flows into ESG products increased by nearly 2,500 per cent between 2014 and 2019.
The increased popularity of ESG has coincided with a greater awareness of the environmental issues facing the world as well as the role of investments in shaping the future of the planet and society.
Amendments to Mifid II, to come into force in Q1 2021, are also expected to increase ESG inflows as the new rules will mandate advisers to be more proactive with customers in relation to ESG considerations by asking them about their preferences.
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