Growth in ESG investments has stalled, according to new research by VanEck.
The company’s seventh annual Smart Beta Survey, which comprised 620 financial professionals working in an advisory capacity in Australia, revealed that the number of professionals invested in ESG contracted by 1 percentage point from 46 per cent in 2021.
Compared to 2019, however, the popularity of ESG among this cohort has rocketed from just 20 per cent.
By far, the key motivation to invest in ESG was client demand with 70 per cent of those that are or are considering an investment in ESG funds citing clients as the driving force behind their interest.
Next on the ladder was positive social impact with 46 per cent, positive impact on environment and climate change with 42 per cent, and values and beliefs alignment with 40 per cent. Interestingly, 3 per cent of the respondents said they would never invest in ESG funds, while one in 10 said regulatory requirements would push them to consider ESG.
Regarding the most popular asset classes that respondents are currently or would consider investing in ESG, international equities led the pack with 83 per cent, followed by Australian equities on 80 per cent, and Australian fixed income and global fixed income on an equal 30 per cent.
Moreover, when investing in ESG, a great majority, or 60 per cent of professionals said they would use a combination of active and passive strategy.
Positive screens remained the preferred approach among this cohort, according to VanEck, with 44 per cent of ESG investors using this method for an ESG allocation, followed by negative screens with 38 per cent.
VanEck’s research also shed light on smart beta strategies, revealing that 46 per cent of financial professionals currently use smart beta strategies.
The top reason for not using smart beta is a lack of knowledge, with 48 per cent of professionals noting that they don’t know enough about this investment strategy.
Moreover, the firm found that ETFs remain very popular in Australia with the penetration rate said to be at 88 per cent. In fact, VanEck revealed that two in three professionals have increased their usage of ETFs over the last 12 to 18 months.
Reduced portfolio costs emerged as the number one reason driving ETF usage, followed by change in portfolio strategy and increased knowledge and awareness of ETFs internally.
