The report, published by law firm Collyer Bristow, asked 501 private investors with a minimum of £100,000 of investable assets for their views on ESG investment decisions and performance.
It found that when making an investment decision, 47 per cent considered the ESG credentials to be important.
When asked why they thought ESG credentials could make an investment more attractive, 35 per cent stated moral/ethical reasons, but 20 per cent believed that ESG credentials did not make an investment more attractive.
Only 12 per cent thought that it made the investment more attractive, on the basis it could improve their reputation.
The research also suggested there could be a gender differential when it comes to ESG considerations, with 56 per cent of women who participated in the study stating that ESG credentials were important, compared to 39 per cent of men.
There is a significant proportion of private investors who do not have an ESG focus when investing.Gavin Haynes
Ragavan Arunachalam, partner in the corporate and commercial team at Collyer Bristow, commented: “These findings make interesting reading for companies and private equity investors alike. ESG and impact investing has been one of the fastest-growing areas of investment for several years."
Furthermore, the report asked how important certain factors were, when looking at an investment opportunity:
One of the lower factors on the list, was the social impact a company has, such as lack of diversity, with 47 per cent of investors stating this was important, but 19 per cent feeling as if the issue was unimportant.
Moreover, there seems to be an age differential in these findings with investors under 35 having said carbon emissions were the second most important factor. While investors over 35 believed a company’s governance and transparency is more important.
Gavin Haynes, investment director and co-founder of Fairview Investing commented: "There is a significant proportion of private investors who do not have an ESG focus when investing, and they are behind the curve in terms of integrating ESG credentials in their investment decision-making process."
Potential for disputes to arise will depend on the investors’ expectations and whether there is a disparity between how the company is selling itself to investors and what it is actually doing.Janine Alexander
"It is indisputable that having an understanding of a company's ESG characteristics is essential to ascertain the risks and long-term growth potential if making an investment", he added.
When asked whether investors would be more likely to put money in a company that had greater transparency about its ESG efforts, compared to a company that did not, 38 per cent believed it would make no difference; 24 per cent stated that they would be much more likely; and 27 per cent said they would be slightly more likely.
Arunachalam continued: “Companies seeking investment should be careful to consider the impact of their ESG credentials on potential investors, as thorough ESG disclosures and a good level of transparency can help to de-risk positions for investors and make a company a more appealing investment prospect.”
Janine Alexander, partner in the commercial disputes team at Collyer Bristow, said: “There is growing interest and demand from investors for ESG to play a greater role in investment decisions, as this research demonstrates.
"We [also] know that regulators are starting to pay increasing attention to and where there is potential for disputes and issues to arise, particularly around greenwashing."
She added: "The potential for disputes to arise will depend on the investors’ expectations and whether there is a disparity between how the company is selling itself to investors and what it is actually doing.
"Given the current level of appetite for ESG and impact investing, we see this as an area ripe for disputes and issues over the next few years in the UK.”
A spokesperson from the FCA told FTAdviser: “The FCA is acting to address greenwashing, protect consumers and support the transition to a more sustainable economy.
"In July we set clear expectations for funds which are marketed as sustainable. We are currently doing work on sustainable investment labels and disclosures, to ensure that firms are not overselling themselves and consumers can find the products that best meet their sustainability demands.”