Many investors are not aware of environmental, social, and governance (ESG) factors, a new report from Foster Denovo has found.
In fact, 60% of investors who took part in the survey had no knowledge of the existence of ESG investing.
However, one quarter of those surveyed had invested with ESG factors in mind.
Of these, more than four-fifths said they would risk performance for a more sustainable investment. In addition, 79% would avoid investing in companies not taking sufficient action on ESG issues.
There is also a sizeable proportion of non-ESG investors who are interested in sustainable products. Over two-thirds said they would be willing to consider investing sustainably.
Yet, half of non-ESG investors said they are not currently engaged in ESG investing due to perceived lower returns.
Foster Denovo head of investment Declan McAndrew said: “It’s clear that many people – including those not currently investing sustainably – are interested in and willing to learn more about ESG and want to put their money towards positively benefiting the planet as well as making returns.
“However, a lack of awareness about the availability of such products, what ESG means and a persistent misconception about lower returns are clearly having an impact.”
Foster Denovo highlighted the important role advisers have to play in giving investors the knowledge and confidence to invest sustainably.
The research found that 70% of non-ESG investors had not had a discussion with a financial adviser about sustainable investing. In comparison, 72% of ESG investors have worked with a financial adviser.
In fact, 89% had a discussion with their financial adviser about sustainable investing. Yet, the research revealed that 82% had initiated the conversation about ESG themselves.
Foster Denovo suggested advisers could do more to ensure clients are fully aware of the options available to them.
McAndrew added: “Advisers are in a key position to offer guidance and clarity, helping to dispel some of the myths and get more people onboard with using their savings to have a positive contribution to the planet. Above all, it is about being client focused.
“Interest in sustainability is only going to increase, and making sure clients have the right information available to make an informed decision that is best for them should be the driving force behind every conversation, particularly in light of Consumer Duty.
“Our advisers are having regular conversations with clients on ESG, which has highlighted a disconnect between people living their lives more sustainably versus where their funds are invested.
“These conversations have resulted in more clients now investing in ESG, which is not only the right decision for the client, but a move in the right direction for the planet too.”
There are indicators that investor perception about the environment and the impact of their investments has grown over recent years.
Almost two-thirds of investors surveyed have changed their minds over the past three years about the importance of the environment.
Over half felt strongly about the impact that climate change could have on their savings and investments.
Moreover, 89% were concerned about the impact corporate practices and some large businesses are having on the environment.
Atomik Research conducted the research on behalf of Foster Denovo. It surveyed online 1,001 UK respondents who had investments.