Confidence in ESG has bottomed out, according to a survey by the Association of Investment Companies, which found that zero respondents claimed complete trust in sustainability claims and less than a fifth of intermediaries reported trust in ESG ratings.
The ESG Attitudes Tracker, AIC’s annual research report on mindsets surrounding ESG investing, found that about half of respondents had “limited trust” in sustainability claims. ESG ratings also suffered, with less than a quarter of participants agreeing the ratings reduced greenwashing concerns and even fewer putting faith in the ratings themselves, at 19%. One respondent to the survey called for additional standard regulations for the ratings, calling the current state “a minefield”.
Nick Britton, research director at AIC, said: “Our ESG Attitudes Tracker shows that advisers and wealth managers remain deeply sceptical about sustainability claims from funds, even as they expect demand for these strategies to increase.”
While faith in the systems decreased, respondents’ belief in their own knowledge rose in the past year. Discretionary fund managers reported a 16 percentage-point increase in feeling “very good or excellent” in their knowledge of ESG from last year, totalling 47%. Advisers held slightly less conviction, with 31% in that confidence range.
“It’s good to see respondents to the survey becoming more confident about ESG, and it’s clear that many have been working hard to build their knowledge,” Britton said. “However, conversations with clients remain challenging because of varying levels of interest and understanding, confusion over key terms and concepts, and even the politicisation of some ESG issues.”
The past year has also seen a collapse in performance expectations for ESG investing, with less than a third of respondents holding out belief in a growth boost for the sector, compared to just under 50% last year.
One adviser participating in the survey said: “It is a difficult one because a couple of years ago I would have said that there is strong evidence that being more thoughtful about your investments along the ESG lines can deliver better returns.”
“I know that is a little bit more of a difficult case to make because the last couple of years have not been positive for many of the stalwarts of ESG investing.”
However, advisers and discretionary fund managers are divided in their faith in terms of performance. While 41% of discretionary fund managers believe ESG investing will aid in fund performance and 29% believe it will be an impediment, only 24% of advisers see ESG investing aiding in performance and 34% think it will be an impediment.
One fund manager respondent shared: “I have seen growing evidence that integrating ESG factors into investment analysis can potentially lead to better risk-adjusted returns.
“Further, regulations around sustainability disclosures and practices are rapidly evolving. Proactive companies that address ESG issues are likely better prepared for regulatory changes than others.”