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Study Adds To ESG Investing Noise Level

Tom Burroughes

8 October 2018

While the trend for environmental, socially responsible and governance-related investing may attract some skeptics, evidence suggests that the ESG approach is a winner with a significant portion of end-investors, and that is particularly so for younger adults.

New data from Cerulli Associates, the research and consulting firm, finds that in 2017, more than two-fifths of investor households said that they preferred an ESG approach to managing their wealth. The share is even higher – 64 per cent – for people aged 30 to 39 and 67 per cent for those under 30. With an expected $30 trillion inter-generational wealth transfer from Baby Boomers in the works, the implications of younger adults' enthusiasm for ESG investing are clear.

As well as underscoring the impression of how Millennials are keen on ESG approaches, the report also throws in a cautionary note about how a relative shortage of performance data so far is a drag on take-up. 

“In response to growing client demand and demographic trends, asset managers are actively working to develop and launch environmental, social, and governance products for client portfolios,” Ed Louis, a senior analyst at Cerulli, said. “While wealth managers and other providers are developing the tools to support these efforts, advisors and investors are implementing them in portfolios more slowly than intended.”

Family Wealth Report has asked Cerulli for data on how many people were polled for their views and will update in due course.

The buzz around ESG investing, and related areas such as impact investing, has been a feature of the wealth management industry for some time. Approaches vary: some ESG approaches screen firms to weed out polluters, users of certain types of labor, producers of firearms or tobacco. Others employ more “positive” approaches where investors work with firms to change behavior. Impact investing typically relates to projects that are designed to achieve a certain impact – such as cutting criminal re-offending rates – and also deliver a financial return. The ability to deliver such investing skills has even played a part in recent wealth industry changes. For example, Rockefeller Capital Management, the recently-rebranded US wealth management house, sees environmental, social and governance-based offerings as a way to secure business, its chief executive has said. 

The Cerulli study found that performance data issues are weighing on adoption, even while enthusiasm appears to be strong. “Three-quarters of advisors who do not employ ESG strategies cite fears about negatively impacting performance as at least a moderate factor in their decision, with 35 per cent of those advisors saying it is a major factor,” Louis added. 

“Additionally, 41 per cent of advisors believe that ESG and socially responsible investing strategies do not offer necessary performance,” he said. 

When asked about challenges to increasing client demand for ESG strategies, 29 per cent of asset managers state that misconceptions about performance are a major challenge, while an additional 68 per cent report it is a moderate one.

Some of the terms used around ESG and impact investing continue to confuse investors, according to a recent study by UBS.