Independent financial advisers have seen a sharp rise in the number of investors looking to pile their cash into ethical and environmental funds, research has shown.
Data from Federated Hermes, a responsible investing-focused asset manager, showed 85 per cent of surveyed UK IFAs had seen a rise in client requests to allocate capital to environmental, social and governance-integrated funds since the start of the Covid-19 outbreak.
Federated Hermes polled 200 advisers at the end of April and found 82 per cent had seen an uptick in enquiries from investors about how their capital can be committed to combat the effects of climate change, raise governance standards and improve human rights.
Some 78 per cent thought their clients would choose to divest from companies they deemed to have failed to support their employees and wider society through the crisis while 82 per cent said the current crisis would result in more individuals investing in pursuit of ESG goals.
Harriet Steel, head of business development for the international business of Federated Hermes, said: “The crisis is driving seismic change across markets, the economy and society, so it is no surprise to see that investors are reassessing the long-term aims and outcomes of their investments.
“The pandemic has radically reconfigured concepts of sustainability, reinforcing our long-held belief that investment and value creation must deliver more than just strong financial returns.”
Alistair Fullerton, director at financial adviser Lathe and Co, said his business had seen an increase in ESG investments because the current period of uncertainty had been the “first real acid test” of these types of portfolios and they had “fared well”.
He added: “It feels like up until this point they were viewed as ‘nice to have’, but are now viable investment portfolios that generate alpha.”
Investment manager at GDIM, Tom Sparke, said the collapse in the price of oil had shown up some of the fragility in the energy sector, where funds holding the oil giants have been hurt but ESG-based funds had not.
Mr Sparke said the performance disparity was “clear”, but added: “There also may be a greater element of community or shared responsibility that is taking hold during these tough times and driving people to seek out investments better for the world as a whole.”
Environmental, sustainable and governance (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 despite ESG campaigners long pinpointing a lack of interest from IFAs as the primary cause of the products’ slow take up in the UK retail market.
Recent research suggested advisers were coming round to the growing popularity of ESG funds, however, as FE Fundinfo data showed the majority of IFAs increased their ESG allocation last year and expected it to grow further in 2020.
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