Responsible investment has grown from niche exclusion-led approaches in the mid-90s to a mainstream part of the professional asset management world today. Globally more than USD 30 trillion, or a quarter of professionally managed assets, are held within responsible investment strategies[i]. Yet the landscape of responsible investment is diverse. Responsible investment approaches form a heterogenous mix, ranging from focusing on the core investment process to ring-fenced approaches for funds and mandates. While there is substantial overlap, the former include the pursuit of ESG integration and active ownership while the latter revolve around exclusionary or best-in-class screens, thematic or impact investing strategies. All Investments have impacts and this spectrum of responsible investment approaches will reflect a range of outcomes, from a focus on financial returns to emphasising wider societal objectives.
Over the past decade there has been enormous growth in demand for assets to be run to mandates that integrate environmental, social and governance (ESG) factors within the investment process. To date, that growth has been driven by institutional investors, but this is no longer just an issue for global, multinational investment organisations with large institutional mandates.
Invesco conducted a UK study which set out to assess how well different generations of retail investors understand responsible and sustainable investing and how interested they might be in it. It sought to identify what it would take to encourage them to invest in responsible strategies and what might hold them back.
In-depth interviews conducted for this study demonstrate how sustainability is becoming a fundamental part of commercial life for the UK’s wealth managers and multi-managers.
A number of findings emerged from the research.
Confusion: Retail investors still have little awareness or real understanding of terminology like sustainable, responsible, ESG or impact.
Apprehension: Investors need to be confident that ESG investing will not cost them investment returns.
Assumptions: Investors assume that the law and government authorities ensure most firms are run appropriately and to societally acceptable standards.
The industry needs to be clear and consistent in its use of terms and more alert to the risks of investors misinterpreting phrases like “responsible investment”. It needs to do more to educate investors about ESG investing and how it can benefit them financially as well as being good for society. Investors may not embrace ESG without being convinced that it can enhance investment returns.
Finally, while it is good to offer investors choice – distinct products with different shades of green, for instance – wealth managers and multi-managers need to embed ESG within the whole investment process. As investors become better educated about the benefits of ESG we could find them requiring it as a standard part of the investment process and discriminating against those providers that have not had the foresight to prepare for this sudden wave of expectation.
Download the report for the full findings.
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[i] Global Sustainable Investment Alliance, 2016 Global Sustainable Investment Review, 2018.
