Adverse market conditions, concerns about greenwashing and a backlash against sustainability have led to a decline in the appeal of impact investing worldwide, according to a study by American Century Investments.
UK investors are less willing to sacrifice returns when impact investing, according to a global survey by US asset manager American Century Investments (AIC), which has $240bn in assets under supervision.
Thirty-three percent of UK respondents said they were willing to give up financial returns for a positive impact in 2023, a drop of 5% compared to the year before. The UK is followed by Germany (31%), and Australia (29%), with the US and Singapore showing the most willingness to sacrifice returns at 40% and 47% respectively. The US was the only market in the survey to show an increase on the previous year.
Concerns about greenwashing and the economy played a key role in the outcome of AIC’s seventh global impact investing survey, Sarah Bratton Hughes, senior vice president and head of sustainable investing at the US asset manager, told Impact Investor.
“You have rising rates, rising inflation, geopolitical tensions that are rising overnight, we have 64 elections that we know about this year. I think there’s just a lot of uncertainty in the economic environment, that’s resulting in some of this pushback,” Bratton Hughes said.
Gen Z decline
AIC surveyed participants in the US, the UK, Germany, Australia and Singapore.
The overall appeal of impact investing fell across all markets. The biggest drop (5%) happened in the UK, with Gen Z showing the biggest decline across all generations.
“There is a lot of uncertainty for people who are actually newer to the market,” said Bratton Hughes, when asked about Gen Z, or the generation born between the late 1990s and the early 2000s. Unlike older generations, “who have been able to build up some wealth”, younger investors “haven’t been around to see different market cycles”.
Some Gen Z investors also “appear discouraged by the lack of progress on environmental and societal issues or perhaps they are searching for more direct ways to bring about changes which affect their generation the most”, Bratton Hughes said.
For the first time in five years of survey results, 30% of UK investors said healthcare was their main concern, pushing the environment into second place with 27%.
‘Room for improvement’
The results of the survey showed that there is “room for improvement” in how the asset management industry communicates what investors should (and should not) expect from impact investing, Bratton Hughes said.
“We’ve asked the question every year: ‘Are you willing to sacrifice returns to invest sustainably?” she said. “But we never asked the next question, which is: ‘How much in returns are you actually willing to sacrifice?’ And it should come to no surprise that it’s actually zero to 10% max.”
Most individual investors “cannot afford to give up returns, or if they can, they can’t afford to give up more than that”, said Bratton Hughes. “So…how do we create well-diversified portfolios that meet clients’ risks, return and sustainability impact objectives without sacrificing one of those three? It can’t be the triangle, it needs to be the circle.”
