The majority of private investors do not take environmental, social and governance (ESG) considerations into account when making investment decisions, according to the Association of Investment Companies’ (AIC) annual ESG Attitudes Tracker.
Just 48% of respondents said they consider ESG when investing, down from 53% last year, 60% in 2022 and 66% in 2021.
However, almost as many investors (43%) told Research in Finance (which conducted the study) that they were “fans” of ESG investing. This cohort is also in decline, down from 50% in 2023, 51% in 2022 and 60% in 2021.
ESG strategies are more popular amongst younger investors. More than half (53%) of respondents under 45 consider ESG when investing, compared to 43% of people aged 65 or above.
Performance is one of the main reasons that sustainable investing is falling out of favour. A mere 17% of respondents believe that taking ESG considerations into account is likely to improve performance, down from 22% last year.
There is also a lot of scepticism about investment firms’ ESG credentials. Two-thirds of respondents (67%) said they were concerned about greenwashing and 61% are not convinced by ESG claims made by funds.
A quarter (26%) of all respondents – and 31% of people aged 65 or older – associate ESG with being “woke” but only 9% said they found it “pointless”.
Nick Britton, research director of the AIC, said most people who aren’t engaged with ESG are “sceptical, uninterested or prioritising investment performance over ESG issues”.
Meanwhile, governance issues have risen up the pecking order and, for the first time, are now as important to investors as the environment.
As one investor said: “If it hasn’t got good governance, you really shouldn't be investing in it. If the management [is] poor, then it's going to lead to a disaster.”
Britton added: “Almost all the governance issues have increased in importance. Investors are increasingly savvy and recognise that governance is the bedrock of ESG investing; put another way, you need the G before you can have the E and the S.”
The most critical ESG issues are transparency and disclosure; these are a concern for 60% of respondents, more than in any previous year. Climate change fell to second place and is important to 54% of investors, while pollution ranked third (47%).
A quarter of investors exclude tobacco from their portfolios, while a further 31% try to avoid it.