A new study on ESG trends by Capital Preferences shows gap between investors’ high interest in sustainability and their lack of confidence in their own portfolios being aligned with their sustainability preferences and values
There’s a yawning gap between investor interest in ESG and confidence that their portfolios reflect their interest. According to a new study, financial services firms have a great opportunity to go the extra mile for their clients in this area.
The study among 1,800 private investors in Australia, Hong Kong, Singapore, the UK, the US, and the Netherlands was commissioned by New Zealand-based technology firm Capital Preferences.
The investors questioned have investable assets that range between $50,000 (€48,000) and $5m, and invest with a financial adviser through their bank, independent adviser, or online.
Despite high, and growing, global interest in environmental, social and governance (ESG) requirements, only a fraction of investors are confident their portfolio is aligned with their values.
Some two-thirds of investors rate ESG-factors as important or very important in their investing decisions, but only 20% of them are highly confident their portfolio is fully aligned to their values.
According to the report ‘ESG is Personal: A Study of ESG Preferences and Advisory Practices‘ the main reason for the high interest/low confidence gap is investors’ lack of clarity about their own preferences.
Among investors with at least some interest in ESG, only 4 in 10 now how much of their portfolio is the right amount to invest in ESG-funds, and even fewer have a sense of how ESG-pillars should each be reflected in their portfolio.
The challenge is one of education, knowing what’s possible with ESG, and discovery, learning what one’s ESG preferences truly are.
Not more product choice
The Capital Preferences study concludes that investors and their advisers don’t need more product choice – they need greater confidence in the choices put in front of them.
But, so far, the industry is missing the same level of innovation in client education and diagnostics that it has brought to ESG products and ratings which is a missed opportunity. The report says: “Financial firms that can bridge the ESG interest-to-confidence gap by delivering a personalized, ‘closed loop’ ESG experience stand to reap massive rewards in client advocacy, AUM and referrals.”
Despite high global interest in ESG, only a fraction of investors in the three Asian countries studied are confident their portfolio is aligned to their ESG values.
In western countries, Dutch investors are slightly more negative compared to investors in the US and UK when it comes to understanding their own preferences for sustainable investing and how they should be reflected in their portfolio.
Despite the great global interest in ESG, only a fraction of Dutch investors is convinced that their portfolio is fully aligned with what they consider important sustainability factors. Also, only 30% say their advisers clearly explain ESG concepts and terms.