This time last year, the rise of environmental, social and governance considerations appeared to have reached a new peak.
A PwC survey of more than 1,000 investment professionals revealed that 77 per cent of institutional investors plan to stop buying non-ESG products by 2022.
It also reported that in Europe alone, ESG funds were expected to exceed conventional funds by 2025.
So, one year on, how far has the ESG investment journey continued in this direction? Will all funds be ESG funds in future, and what will the impact be on investors and companies?
Keith Churchouse, chartered financial planner at Chapters Financial, says he is not convinced by the timescales in the survey: “The direction of travel is certainly more positive for ESG funds, but I think it will take longer than 2025 for them to outnumber conventional funds.
"They are not yet becoming the norm."
And according to Churchouse, clients are not overwhelmingly voting with their feet, so far anyway, as he explains: “We have noted that in our experience, many investors are keen only to allocate a proportion of their funds to ESG investing, almost like a ‘try before you buy’ approach.
"Confidence will need to build with investors, and this will take time.”
Covid-19 has inevitably had an impact on clients’ decisions too, Churchouse notes. "Post-pandemic, many clients are just taking stock of where they are and where they want to be."
What does ‘green’ mean?
However, any hesitancy around ESG investment on the part of clients is not a reflection on the quality of the product, as Churchouse explains: “To be clear, there are some good ESG-focused investment funds available, and these are fully accessible.
“However, the maturity of this market, when the possibility of greenwashing should be minimal, may be some time away.”
Duncan Glassey, founder and chartered financial planner at WealthFlow, also expresses concerns about the issue of greenwashing: “Greenwashing is a major problem and likely to impact negatively in the minds of clients who will see through the marketing hype and untruths.
“There are so many misleading statements from investment house marketing departments. For instance, I’ve seen a company offer a ‘carbon-free’ fund, which includes Amazon in its top 10 holdings.
"But many people would not consider Amazon carbon free, with its carbon-fuelled delivery vans and excessive packaging."
Glassey adds: “Those fund managers that don’t take ESG/socially responsible investment seriously will undoubtedly suffer. But many will not change. Greenwashing is a simple, less costly solution, compared to deep-dive data collection.”
And it is not going away just yet: the problem of greenwashing requires high-level attention, according to the International Monetary Fund. In its recent Global Financial Stability report, published this month, it warned that policymakers should ensure regulatory oversight is in place to prevent it.
A report in September by fintech company Util also indicates that there is a lot more work to do on quantifying ESG-related investment.