Passion for ESG investing seems to be cooling, as fewer investors now say they consider ESG when investing.
The Association of Investment Companies' annual ESG tracker found the percentage of investors and advisers considering ESG this year was 48 per cent, having fallen from 53 per cent in 2023, 60 per cent in 2022, and 66 per cent in 2021.
Performance proved a particular concern, with a mere 17 per cent of the 400 investors and 202 intermediaries asked saying ESG investing was likely to improve performance, down from 22 per cent last year.
One investor told the AIC they wanted to do good but it had to be a "balance between that and getting returns".
Performance has been an ongoing debate in sustainable investing but experts agreed at this month's Good Money Week conference that while it can be trickier to get it right in the short term, the long term outlook for ESG investing looked solid.
Nick Britton, research director of the Association of Investment Companies, said: “Our ESG Attitudes Tracker shows that investors’ love affair with ESG investing continues to cool.
"That doesn’t mean they reject it altogether though. To extend the metaphor, they are thinking about the bits of ESG they like and those they don’t, and deciding if they want to make this a longer-term relationship."
More investors pay attention to the 'G' in ESG these days, the AIC found, with environmental and governance issues tied in their level of importance for investors at 37 per cent, trailed by social aspects.
As such, transparency and disclosure was rated the number one ESG issue, with 60 per cent of respondents finding it important to consider when investing.
Climate change, on the other hand, fell to second place, while pollution came third, human rights fourth, and waste/preserving resources fifth.
When it came to exclusions, child labour, pornography and oppressive regimes remained the top three red flags for investors, while a quarter fully excluded tobacco from their portfolios.
Britton said: “One interesting aspect of this year’s research is that almost all the governance issues have increased in importance for investors.
"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."
No bad feelings
Though there was an apparent decline in enthusiasm for ESG among investors, this did not mean there were many bad feelings towards it.
Respondents were more likely to associate ESG with positive words and phrases than with negative ones, in particular with words like 'sustainable' and 'responsible'.
The majority (71 per cent) also felt comfortable discussing their thoughts and opinions on ESG with others, and about half felt ESG was no more controversial than other topics within investment.
“Though passions for ESG may have cooled, our research also suggests that love has not turned to hate," said Britton.
