Young investors more drawn to ESG funds than over-55s

The survey also found that women have stronger conviction to invest ethically versus men. 

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  environmental, social and governance (ESG) factors. 

In addition, more than three-quarters (78%) of the same age group said that ESG considerations affect their investment choices. For the 35 to 54 age group, the figure was slightly higher – at 67%.

But, for those over the age of 55, less than a third (32%) said that ESG impacts their choice of fund.

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The survey also found that women have stronger conviction in ESG compared to men.

More than half of the women surveyed (53%) said they would choose a new manager based on their approach to ESG versus only 37% of men. Women are also much more likely to consider ESG in their investment choices, with 69% saying all or part of their portfolio considered ESG issues, compared to 53% of men.

Other studies have pointed to younger investors being particularly keen to align how they invest with their own values. MSCI, the index provider, noted in a research report last March, that the studies and surveys it had analysed “suggested that millennials, as well as women and, increasingly, individual investors of all ages and genders, are interested in directing their investments towards companies with good ESG records”.

In addition, Schroders’ Global Investor Study 2020, which polled more than 23,000 people around the world, found that millennials are less likely to sacrifice personal beliefs for financial gain than other generations.

Holly Mackay, founder and chief executive officer of Boring Money, says:“Two of the key factors which will reshape the make-up of who holds the wealth in coming years are intergenerational transfers and the increase of older women acting as primary financial decision-makers, through independent wealth, divorce or bereavement.

“Both younger people and women increasingly want to include ESG factors in their decisions. Those asset managers who not only embrace this but articulate and evidence it, will stand to gain from these structural shifts.”

Why ESG funds are becoming more popular

A key reason is the debunking of thedeeply entrenched view that returns must be sacrificed to invest ethically or sustainably. In recent years, various pieces of research, including by interactive investor, have shown this to be false.

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Another driver is increased regulation, including the requirement that UK pension trustees must now consider ESG factors when making investment decisions.

In short, regulation combined with higher investor demand is leading fund management firms to focus more on sustainability as part of their investment processes.

But ESG is a minefield for investors to navigate

The variety of terms used by the fund management industry to explain ethical investing risks investors becomingdisengaged from the process of finding a fund that fits in with their own values.

While the terminology can be confusing, the fundamental principle of ethical investing (or however else it is labelled or described) is supporting businesses ‘doing good’ by making a positive impact on the planet.

To help investors navigate confusing technical jargon, interactive investor launched the ii ethical long list in September 2019, which contains more than 140 socially responsible and environmental funds, investment trusts and ETFs available on our platform.

• Want to invest ethically? ii’s ACE 40 list of ethical investments can help
• The ii Ethical Growth Portfolio: a ready-made diversified ethical portfolio, selected and managed by our experts

We also launched the ACE 40, a rated list of best-in-class ethical funds for retail investors wanting to better align their investments with their personal values. All ACE 40 investments are categorised into one of three broad ethical investment ‘styles’ to help investors find a fund that meets their values. The three categories are Avoids, Considers and Embraces and you can find out more about them here. 

There is also the ii Ethical Growth portfolio, which is designed to give investors an idea about how they can build their own diversified ethical portfolio.