The Schroders Global Investor Survey and Schroders Adviser Survey, which provide an annual snapshot of the views of private investors around the world and UK financial advisers on a range of key issues, both suggest sustainable investing is becoming mainstream.
The surveys reveal five key points of interest:
1. The rise of the ‘S’ and the ‘G’
The traditional focus on the ’E’ appears to be shifting as clients and advisers develop a more nuanced understanding of the interplay between environmental, social and governance factors.
The Schroders Global Investor Survey showed that 57% of investors care more about social factors than they did pre-pandemic, an even higher percentage than the 55% of investors who now view environmental as more important.
The way staff were treated during lockdown and furlough will perhaps have focused investors’ minds with the spotlight on working practices at companies such as Boohoo also helping them to understand the impact of social factors.
In the Schroders Adviser Survey, advisers were asked to rate the importance of the ‘E’ ‘S’ and ‘G’ factors when they make investment decisions. They were also asked to rate how important they think each factor is to their clients.
On a scale of 1 (low) – 5 (high), environmental factors were rated 4 or 5 by 62% of advisers while 55% of advisers rated social and governance factors at the same level. This suggests that advisers now view the three factors as fairly close to each other in importance.
However, a slightly different picture emerges in their views of what their clients think. Advisers indicate that clients do not view social factors and governance factors as being quite as important as environmental factors, with 40% giving a 4-5 rating to ‘S’ and 29% to ‘G’ compared to 54% for ‘E’. Given what investors told us in the Global Investor Survey, perhaps there is a disconnect here between what clients actually believe and adviser perceptions.
2. Returns are now a given
There has been a significant shift in private investors’ sentiment on the return potential of sustainable investments. There are also signs that investors are also now appreciating the message that a well governed company should perform well.
42% of private investors now believe sustainable funds can deliver higher returns, while only 8% view their return potential as unattractive.
57% of investors also told us that they would be happy to move to a sustainable portfolio assuming the same level of risk and diversification as they wanted to make a positive impact.
3. Client demand continues to increase
COP26 put climate change and sustainability firmly on the agenda and in front of advisers’ clients. While this specifically focused on climate change, 64% of advisers felt that the high profile of this event would lead to an increased demand for sustainable investments from clients. It will be interesting to review the position on this in our 2022 Adviser Survey later this year and identify if these predictions are correct.
75% of advisers reported an increase in the number of clients asking for sustainable investment options during 2021. As a provider of sustainable investment solutions, Schroders also observed this increase. For example, the proportion of flows into the Schroder Sustainable Model Portfolios, as a percentage of total flows into all models, continued to increase month on month.
4. Education – could we do better?
Confidence in talking to clients about sustainable investing varies among financial advisers with 51% still rating this as ‘middling’ or below.
There is an argument that this could be hampered by the lack of consistent terminology and the requirement for alignment of labelling of sustainable products. There is an EU taxonomy which asset managers use to report on the sustainability of their products as per the Sustainable Finance Disclosures Regulation (SFDR). Advisers can then use this to establish client suitability preferences.
However in the UK, the regulator has unveiled plans for Sustainability Disclosure Requirements (SDR) which also aims to introduce labels for sustainable investment products. The consultation for this will take place throughout 2022 and will hopefully deliver further clarity for advisers and investors.
At Schroders, we are always happy to help with training and education programmes for advisers and will continue to deliver this throughout 2022.
If we go back to the original question of whether sustainability is becoming mainstream, perhaps the best evidence that it is comes from the following.
5. ESG is firmly embedded in the investment selection process
80% of financial advisers now specifically consider ESG factors as part of their fund selection process. This has risen significantly from 43% in 2019 and represents a significant shift for financial advisers.
While sustainability may not yet be considered to have fully entered the mainstream, it looks like it may well be before too long.
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