Investor ESG interest grows, even if it means lower returns

Research shows green investing is on the rise, driven by younger consumers.

Investor interest in environment, social and governance (ESG) investing is on the rise, even if it means accepting lower returns.

Research among UK investors has found 24% have put money into ESG holdings in the past and 25% intend to do so by 2025.

This rises to 48% among younger investors aged 18 to 34.

Almost a third, 30%, said they were willing to take lower returns if it meant an investment has a positive social or environmental impact.

The research, by specialist mortgage lender BML, found 22% of investors say ESG factors have played an increasingly important role in their investment decisions, with 29% stating that they will now carefully consider the environmental or social impact of the businesses or assets they invest in.

Additionally, 60% want investment providers to be more transparent about the environmental or social impact of different products and assets.

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Alpa Bhakta, chief executive of BML, says: “ESG investing has become far more prominent in recent years, yet our research reveals that it’s still in its relative infancy, fewer than a quarter of UK investors have entered into ESG investments to date. Clearly, though, the market is set for rapid growth.

“Not only are a significant number of investors now prioritising ESG factors when making financial decisions, with many intending to make ESG investments in the coming years, but we can also see that investors are open to lower returns if their investments influence positive change.”

Nigel Green, chief executive of advisory firm the deVere Group, says ESG investing is becoming a major trend and is unlikely to slow down.

He adds: “Millennials, who are statistically more likely to seek responsible investment options, are set to become the major beneficiaries of the largest intergenerational transfer of wealth – an estimated $30 trillion over the next few years. 

“In addition, recent research reveals that the majority of environmental, social and governance investments have outperformed their non-sustainable counterparts over the last year and have had lower volatility.

“This will only serve to attract more investors.”

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Last month, ii reported that investors under the age of 55 place greater importance on whether a fund invests in an ethical manner, according to a new survey.

The survey of 1,529 retail fund investors, carried out by Montfort Communications in conjunction with Boring Money, found that 63% of 18 to 34-year-olds said that they would choose a new fund manager based on its approach to ESG factors.