Four in 10 advisers think ESG investing is likely to lead to a better investment performance, according to research by the Association of Investment Companies.
A further 56 per cent of discretionary fund managers agreed, according to 210 advisers and DFM surveyed by Research in Finance between July 27 and August 31 this year.
Experts are split on whether ESG investing is financially rewarding, or just a feel-good strategy not linked to investment performance.
But recent analysis has shown high-rated European ESG stocks outperform by 12 per cent a year, even when factor and sector biases are taken into account, while high momentum stocks also outperform, by 2.8 per cent, but only after biases are removed.
Risk levels
According to the research, 33 per cent of advisers and 31 per cent of DFMs said they are worried ESG investing will mean a higher level of risk.
The AIC said some advisers expected higher volatility with ESG funds due to their “narrowed universe”. Other concerns include that ESG investing doesn’t always fit well with the risk-managed approach to building portfolios that advice firms adopt.
One financial adviser said: “If you strip out large sector areas you can essentially increase the risk, the volatility.
“One of the big drivers, quite rightly, from the regulator is assessing people's risk and making sure that the investments that you have fit within that and then other things come secondary to that.”
The majority of the advisers surveyed (62 per cent) said ESG investing was better suited to active funds, with 80 per cent of DFMs agreeing.
Nick Britton, head of intermediary communications at the AIC, said: “In the investment company world, we’ve seen companies with strong ESG credentials in high demand.”
He added that the AIC’s renewable energy infrastructure sector, for example, has raised over £2.5bn so far this year.
“Investment companies’ ability to invest in a wider range of assets, including unquoted impact investments, makes them attractive to investors who want their investments to do good and see that impact being measured and reported.”
sally.hickey@ft.com
