He adds: “It has been a hard area to create a simple story of what it means to do these different types of techniques. That might be an ESG integrated approach versus an impact investment approach and some people are going to say, ‘I don’t know the difference, what does that mean?’.
“I think that unfortunately it makes it challenging for the punter who just wants to say, ‘Give me a good sustainable investment product’.”
The Marmite effect
Jason Hollands, managing director at Tilney Group, agrees that ESG is suffering an image problem. As such, he says it is regarded like “Marmite” and people wrongly assume investing in such funds will result in reduced returns.
These misconceptions are often reinforced by the marketing behind them which tends to be daubed with images of wind turbines and trees, he adds.
“In reality, most ESG funds are invested in very recognisable companies, not niche green energy companies or social impact projects,” says Hollands. “The pigeonholing of ESG as a niche interest can sometimes mean investors are only offered such funds on request, rather than proactively presented with them as an option, so I suspect the latent interest is not being fully realised.”
Hollands says ultimately awareness of ESG factors should be part of good risk management and not just something of special interest to investors with strong principles.
“After all, companies that are transparent, have good governance and are aware of their operational reputational risks are simply more attractive stewards of capital than businesses that are opaque or cavalier.”
