This view was echoed by Gavin Haynes, investment consultant for Fairview Investing, who said: “2020 is definitely going to be a defining year for ESG. It was a trend that was moving quickly but Covid has acted as a catalyst to refine how investors, regulators and consumers react to ESG investing. For the first time in a long time, you’ve seen a real shakeout in the market because of the sustainable areas ESG has focused on and it’s proved to be very defensive in a difficult market climate.”
However, Mr Haynes argued that a major stumbling block for ESG investing will be how it tackles the unsavoury practice of greenwashing.
This is a when a company spends more time and money on marketing themselves as environmentally friendly, rather than actually minimising their environmental impact. It is a deceitful advertising gimmick intended to mislead consumers who prefer to buy goods and services from environmentally conscious brands.
He said: “The industry has really got to work to make it easier to avoid those who are just paying lip service to it – ‘greenwashing’ for want of a better word. There needs to be some clearly defined parameters put in place. The regulator needs to be involved to allow you to scrutinise funds that are greenwashing their proposition.”
The webinar also highlighted how IFAs can tap into the success of sustainable investing, by recommending ESG funds.
Minesh Patel, chartered financial planner and director for EA Financial Solutions, said: “The outperformance of ESG funds will escalate the demand.
“At present, I am recommending ethical and sustainable funds to 90 per cent of consumers and I get very little push back from clients not wanting to invest in sustainable funds.
“If we as advisers embrace the area, then that will further accelerate demand. Previously, the advice community has viewed ethical and sustainable funds with some suspicion due to underperformance, which has actually really never been the case. But I think the movements of this year will only accelerate that trend further.”
More clarity needed
However, he argued that if ESG investing is to be successful in the long-term, then advisers need clearer definitions of ESG funds, so that they can be confident in recommending such investments to their clients.