Boring Money's Sustainable Investing Report 2022 found 14 per cent of investors were so committed to ESG that they put ESG first and performance second when it came to selecting their investments.
Of these 9 per cent were concerned about environmental impacts, and 5 per cent wanted their investments to affect change on social issues.
For the majority of investors, 8 out of 10 people, performance was still the main reason to invest even when it came to ESG assets.
Boring Money said ESG investing was becoming more about active involvement with positive ideas, as opposed to just screening out the negatives.
Jag Alexeyev, head of ESG insights at Broadridge, which has conducted its own research into ESG investing habits, also said there was more money going into impact strategies, suggesting investors were becoming more concerned about the changes their investments were making.
Alexeyev said: "It's clear that in the last few years and very rapidly, there's evidence in the flows into ESG overall, but also the shift and flows from traditional socially responsible investments to ESG as a financial materiality lens, which asset managers use to manage risk and target better long term risk adjusted returns, to outcomes, sustainable outcomes...and measurable impact. So we see more money going into sustainable impact strategies.
"And this is a reflection of a growing awareness of investors on multiple issues and challenges that are facing them and their children, their grandchildren, and they want their investments to take that into account."
He said ESG had held strong amid the recent rotation to value and the market turmoil seen this year, which has dented investor sentiment overall.
It’s a question of rethinking what info do investors really need, what do they want to know..and make sure to talk to those points.Holly Mackay, CEO of Boring MoneyESG stocks by nature are traditionally growth stocks, suffering when the market turns to value, which has been the case in the past year. However both Boring Money and Broadridge found appetite in sustainable investing was consistently high despite investor sentiment being low.
In the UK, about a fifth on investors said they still intended to buy ESG assets, while in the US general awareness of the asset class has grown by about 10 percentage points in the past year, and four in ten investors claimed they were now familiar with ESG, with two thirds considering ESG at least some of the time when investing.
Alexeyev said an estimated six to seven out of ten advisers currently incorporated ESG into their advice process but there was evidence that many found the space confusing.
"It's a huge challenge, and it's up to asset managers to do what they can to help [advisers and investors] through education, through new tools through technology," he said.
The same was detected by Boring Money in its research, according to Holly Mackay, CEO of Boring Money, who said there was an "awful lot of confusion and continued growing scepticism about greenwashing from advisers and investors."
She said sustainable assets were the third most popular asset class with investors but the problem was “misaligned expectations as much as any wrongdoing by product manufacturers."
It's okay if there's an oil company in your ESG fund. It does not make it not ESG, there are different approaches to ESG.Jag Alexeyev, head of ESG insights at BroadridgeShe said things typically went wrong when people looked into funds and found things they did not expect. Engagement and transition was becoming more popular but investors need to know what’s going on, she explained.
"It just needs a couple of lines of positioning. It’s a question of rethinking what info do investors really need, what do they want to know.. and make sure to talk to those points."
A different ESG
Alexeyev does not believe the ESG market in its current state is dysfunctional but nevertheless he said change was needed.
Part of the solution will be to get better data from corporate issuers which will be more comparable, he said, though without forcing uniformity and stifling innovation.
"I think one of the lessons that regulators got was don't ask for disclosures from asset managers that are dependent on data that does not exist in a granular and comparable way today. Start with getting corporate issuers to improve their disclosures and then helping asset managers to make use of that information."
He said there was evidence of the US regulator, the Securities and Exchange Commission, putting more emphasis on sequence, meaning recognising the data comes first from corporate issuers and is then used by asset managers "in the best way that they can".
Added to the data issue is the fact people have different ideas of what ESG is, he said, which was something he believes advisers will need to address going forward, aided by better information provided by asset managers.
"Financial advisers certainly have to become more aware and they have to take a greater role in educating their clients about the differences and managing their expectations. And saying 'hey, it's okay if there's an oil company in your ESG fund. It does not make it not ESG, there are different approaches to ESG."
But ESG ratings are not the solution, he said.
Alexeyev predicted the market would "look quite different" in 10 to 20 years' time: "We've seen tremendous changes in ESG over the last 10 years, that shift from SRI to ESG, to outcomes and impact, and we're really just at the beginning of this journey.
"Within the last year, we've seen this huge surge of interest in net zero targets, zero solutions, how do you incorporate that into an investment solution? How do you tie decarbonisation of a portfolio to decarbonisation in the real world? That's a huge challenge.
"There are no easy answers to that, not right now. But asset managers working with asset owners, institutional investors are refining that approach and bringing some of those findings to the retail investor.
"I think in the next 10 to 20 years, you'll see tremendous innovation. I think he will look quite different than what it looks like today. And I think regulators will have found a way to encourage that innovation without stifling it."
carmen.reichman@ft.com
