British investors are focusing less on ESG factors when considering investments than they were two years ago, according to research by Charles Schwab.
The latest Investment Forces Study report by the financial services firm finds that over a two-year period, the number of investors believing companies with strong ESG credentials are more attractive as an investment has dropped by 7 percentage points from 75 percent to 68 percent.
In December 2021, more than half (55 percent) of investors prioritized ESG investments, regardless of whether they underperformed. Since then, this figure has dropped by 8 percentage points in just over a year to 47 percent of surveyed investors.
The data shows more than two thirds (67 percent) of respondent investors now prioritize maximizing returns over choosing sustainable investments. Meanwhile, the number of investors considering ESG when making new investments has also narrowed, down 6 percentage points over the two-year period to 38 percent from 44 percent in 2021.
Power of Gen Z
Across the generations, the report reveals boomer investors as the least likely to take ESG factors into consideration when investing (23 percent), followed by Gen X investors (32 percent) and millennials (49 percent). Notably, Gen Z investors are most likely to consider ESG factors (50 percent).
Gen Z taking more interest in ESG related-factors is something former Unilever CEO Paul Polman flagged while speaking on BBC Radio 4’s Today program in February.
Polman, who held the role of CEO at Unilever for 10 years, said the majority of shareholders want to invest in companies that ‘not only give them a good return for the pensioners over time, but also ensure that these pensioners can retire into a world they can live in.’
Belief in good returns deteriorating
The belief that ESG investments provide investors with good returns is deteriorating, according to the report. Only 65 percent of surveyed investors agree that ESG investments yield better returns, as opposed to 71 percent in December 2021.
Appetite to pay additional fees for sustainable investments has also dropped by 8 percent points, with only half (50 percent) of investors now willing to take on the associated charges.
Richard Flynn, managing director for Charles Schwab, says: ‘With the need to maximize returns seemingly growing in importance amid the cost-of-living crisis, fewer investors seem to be factoring ESG-related considerations into their investment decisions.
‘The return on investment is increasingly being called into question, with fees often associated with sustainable investments now actively discouraging investors in this current climate. It will be interesting to see how any economic rebound and reduction in inflation impacts this attitude in the coming years.’