Just 25 per cent of investors believe that investing ethically means compromising on their returns
Sustainable and ethical investment providers have long battled the assumption that performance is compromised when environmental, social and governance (ESG) factors are considered.
But perhaps ESG funds have finally proved their mettle. Just a quarter of UK investors believe that taking a sustainable approach to investing would hinder their returns.
Findings from the latest Schroders Global Investor Study reveal that the majority of investors no longer believe ethics and investment returns are mutually exclusive. That’s clear enough to see in the performance of the Money Observer ethical fund award winners.
The Pictet Global Environmental Opportunities fund has returned 90.1 per cent over the past five years, compared to the global sector average of 68.9 per cent. Meanwhile the Royal London Sustainable World fund has returned 86.2 per cent over that period, significantly ahead of the Mixed investment 40-85% shares sector average of 38.9 per cent. You can read more about manager Mike Fox’s approach to investing here.
However, the survey of investors 22,000 across the globe carried out by the investment giant found that investors in Asia are not so sure about the performance credentials of ESG funds. Some 29 per cent of those surveyed from the region were worried that investing sustainably could harm returns. Investors in the UK and Europe were the most positive about ethical investing.
It’s not surprising then that more than half of UK investors have been increasing their exposure to sustainable investments over the past five years.
Millennials are more likely than older investors to choose ethical options, with some 85 per cent of those aged 18 to 36 believing sustainable investments have become more important to them. That’s compared to just 47 per cent of those aged 65 and over.
Millennials have an average of 31 per cent of their portfolios in sustainable funds, compared to just 9 per cent for those aged 65 and over.
Jessica Ground, global head of stewardship at Schroders, says: ‘It’s encouraging to see that investors no longer appear to be held back from investing sustainable by concerns that this approach may hamper returns.
‘Clearly, barriers still remain which prevent investors from embracing this approach, though. It highlights how much the availability, transparency and advice around these funds needs improving.’
Indeed, lack of awareness of ethical options is a major stumbling block. Around 8 per cent of investors say they don’t really understand what a sustainable investment is and this would prevent them from choosing one.
This factor is likely why ethical funds account for just 1.3 per cent of all assets invested in funds available to UK investors. Latest figures from trade body the Investment Association show investors have £15.4 billion of assets in ethical options.
Some 26 per cent of those surveyed by Schroders believe there is a lack of advice around these investments and 27 per cent believe there is a lack of information available about how fund managers are engaging with companies.