A new Cogent Syndicated report from Escalent shows former ESG investment growth projections have come to a halt, and financial advisors have significantly decreased their use in the investment category despite affluent investors continuing to indicate interest.
From the perspective of financial advisors, the future of ESG investments is bleak, with fewer than six in ten advisors (58%) now using ESG investments, down from 68% in 2020. Most advisors don’t see ESG investing as either a growing trend or an important factor in attracting new clients, with only 15% of advisors currently using ESG agreeing with its importance or expansion.
While fewer than one in twenty (3%) affluent investors is currently using ESG investments, almost four in ten (38%) are interested. Current ESG investors direct an average of nearly 37% of their assets to the category and expect a slight increase in allocation in the next two years (to nearly 39%).
These are the key findings from Escalent’s Predicting ESG’s Future™ report, which is designed to offer key insights for asset managers that seek to optimize their ESG strategies for the future. Surveying affluent investors and financial advisors, the report examines the changes in awareness and appeal of ESG investing, objectives that are attractive as investment opportunities, how ESG influences investment decision-making, barriers/unmet needs of ESG investing and more.
“Young and advised ESG users and intenders report strong interest in using a robo-advisor for ESG investing,” said Linda York, senior vice president in the Financial Services research division of Escalent. “If traditional advice providers continue to overlook the needs of younger investors, the use of financial advisors may fizzle out, or on the other hand, the category of ESG investing could dissipate.”
For advisors and affluent investors alike, rising concerns and barriers continue to impact their decision to avoid ESG investing. Inconsistent definitions and perceived negative public sentiment are rising concerns and barriers for advisors. Worry over unclear government guidance is high among advisors age 55 and older compared with their younger counterparts. For affluent inventors, barriers to ESG investing revolve around disinterest in change as well as a lack of knowledge.
“In the past six months, the topic of ESG investing has become even more divisive as political tensions rise,” added York. “With firms suffering public backlash from using what many call ‘woke’ investment strategies, many advisors are waiting for clarity from regulators before using ESG investments. Increased supervision from federal or state legislature with added qualifications and reporting can only help in terms of ESG becoming more popular among advisors and investors alike.”
Cogent Syndicated, a division of Escalent, conducted an online survey of a representative cross section of 510 financial advisors from September 8 through September 26, 2022 and 4,924 affluent investors from June 24 through August 12, 2022. Financial advisors participating in the survey were required to have an active book of business of at least $5 million and be providing financial advice to individual clients on a fee or commission basis. Affluent investors participating in the survey were required to be 18 years or older, have at least $100,000 in investable assets and be an active participant in financial decisions for their household. Strict quotas were set during the data collection period, and post-fielding statistical weighting (where necessary) was applied. The financial advisor data have a margin of error of ±4.34% at the 95% confidence level. The affluent investor data have a margin of error of ±1.4% at the 95% confidence level. Escalent will supply the exact wording of any survey question upon request.
For more information about the report, click below.