This week we try to answer the following question: are wealthy individuals into ESG investing?
The latest edition of the Saltus Wealth Index has found that despite the growing popularity of ESG investments, only 44% of high-net-worth individuals (HNWIs) are buying them, down from 73% in the previous assessment. The report, which surveyed over 1,000 people in the UK with investable assets of ~£250K, found that 80% of respondents did not see climate change as a priority.
This disconnect from what we see in institutional investors is quite intriguing, given the growing importance of sustainable investing in addressing global challenges like climate change and social inequality. HNWIs have a significant role to play in this, as they have the financial resources to make a difference. So, why is this happening?
According to the survey, one of the main reasons is a lack of trust, rather than a lack of interest for what sustainable investing is trying to achieve. 87% of those individuals who do not currently invest in ESG are considering it or planning to do so in the future. But there are still significant issues that act as barriers for many of them. Complex terminology and the lack of clearly set standards and definitions to back investment strategies, are just two examples of issued that make HNWIs struggle to understand the true impact of their investments.
Here are some of the answers to the question “Why do you not invest in ESG/ impact/ green stocks or funds?”:
- “I don’t think they make a difference.”
- “They don´t generate sufficient returns.”
- “I don’t believe reporting and analysis of ESG initiatives is robust.”
- “I don’t understand the jargon around sustainable investing.”
- “Doing so will be classed as ´greenwashing´.”
- “I don’t think they are truly environmentally friendly.”
- “Sustainable investing is just hype.”
Mike Stimpson, a partner at Saltus, believes that the skepticism around ESG investing is also a consequence of maturing and being held accountable to the same standards as other investment strategies. He notes that greater transparency and a common set of standards and definitions are needed to build trust and confidence in ESG products. Once this is “common practice” per se, it is likely that ESG investment will become a permanent feature of many investors’ decision-making going forward.
It will be important for the ESG movement to gain credibility with this group to continue gaining strength in the market. This will likely only be possible if the industry can tend to the issues people bring up, which are legitimate concerns. In the meantime, it is likely that the institutional side will continue to push for improvements.
CEO, Miranda ESG
Contacts at Miranda Partners