Climate change and the environment have been named the primary drivers of investment decisions by individuals considering ESG factors, in a new survey.
According to a survey by Australian Ethical and Investment Trends, which consulted 2,854 Australian retail investors and 321 financial advisers, 78 per cent of investors who consider ESG factors intend to invest based on environmental factors in the coming year.
In contrast, a little under half went with corporate governance (46 per cent), while 43 per cent picked ethical beliefs, 34 per cent picked social issues and 31 per cent chose Indigenous issues.
The concern over environmental aspects has increased from the previous year. Australian Ethical’s 2020 survey showed actual purchases of an investment or stock based on environmental factors was 58 per cent, compared to 34 per cent for ethical beliefs, 25 per cent for corporate governance, 20 per cent for social issues and 11 per cent for Indigenous issues.
Despite the trend among investors, advisers appeared more cautious in the latest survey. Two-fifths said they had discussed ESG investing with their clients in the last 12 months, despite investor demand.
The study also found it is investors, not advisers, who predominantly initiate ESG investment decisions. More than half (55 per cent) of new inflows allocated by advisers to ESG-aligned investments had been driven by investors.
When it came to choosing the right product provider, investors cited the company’s reputation as the most important factor (87 per cent), entailing investment track record, distribution network, brand name recognition and stated ESG values.
Investing across generations
Millennials voted “clean and renewable energy sources” the top action to positively impact the environment and society. Generation Z prioritised “energy consumption reduction” while all other age groups voted for “recycling of non-biodegradable waste”.
Accumulators (pre-Baby Boomers) were most likely at 35 per cent, to say they would invest in companies focused on creating a positive social or environmental impact, while Gen Z was most likely (32 per cent) to actively avoid companies that create social and environmental harm.
In the last 12 months, 74 per cent of Zoomers also said they had bought an investment or stock based on environmental factors.
John McMurdo, chief executive and managing director of Australian Ethical commented the firm has known “for many years that climate change would and should become a key driver of private investment decisions”.
Sarah Brennan, CEO of Investment Trends added ESG is set to “further become a key component of the investing landscape”.
Further, participants with different investing had different perceptions of the world.
“Eighty-two per cent of consumers who are invested in ESG believe returns will either be better or about the same than other investment strategies. In contrast, 43 per cent of non-ESG investors believe they will be better off,” Ms Brennan said.
“Importantly, ESG managers have an opportunity to help educate investors about areas such as performance and assist them access information more easily to alleviate any concerns about investment returns.”
Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth.
Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio.
You can contact her on [email protected].