Young people are more likely to place greater importance on environmental, social and governance (ESG) factors than older investors despite the area having moved from the niche, into the mainstream, according to Schroders.
In a recent study surveying 1,000 UK investors, Schroders found that the millennial generation ranked ESG factors equally as important as investment outcomes when considering investment decisions.
Courtney Waterman, head of EMEA marketing, said: “We’re seeing a lot of interest from our investors and our clients.”
“On a practical note our ESG events are very popular and we are seeing more ESG questions through due diligence. We’ve seen that increase steadily over the last 18 months to two years.”
“The interest from our clients is reflected in what the industry is seeing overall in terms of not just interest but flows and assets in SRI [socially responsible investing] products.”
Graph showing importance of ESG factors when making an investment decision
Source: Schroder Global Investor Study
As of August this year, £170bn was invested into SRI funds, says Waterman: a 56 per cent increase compared with the same period two years ago.
“If you look at the Global Sustainable Investment Review, there’s been a 60% increase in SRI assets,” she said.
“And these are not small numbers – in 2012 it was £13tn and in 2014 we’re talking about £21.4tn so that is 30 per cent of total global managed assets are being managed responsibly.”
“If you look at Google and look at what people are searching, the ESG terms are being searched more and more. It peaked in October this year, 75 per cent higher than it was two years ago.”
However, the study shows that overall, millennials, which are categorised as 18 to 35-year-olds, are more likely to make investment decisions based on ESG than older investors (aged 35+).
The study concluded that millennials were more likely to actively pull funds from companies that had poor ESG records, such as companies associated with weapons manufacturing/dealing or use of animal testing.
Waterman said: “It’s not just how they [millennials] value it they’re actually changing the way they invest through it.”
“We found through a study that they would be willing to sell an investment in a company that they felt had poor ESG values and a poor record of social responsibility or even if it had animal testing.”
The study also found that knowing their investment was conscious of environmental, social and governance factors meant they were more willing to hold on for longer, with 69 per cent noting they would be happy to hold on.
“If they felt there was a very positive ESG investment they were willing to hold it on average for two years longer than a non-ESG fund,” she said.
Indeed, more than a third acknowledged they would invest for up to two years longer if the fund had ESG philosophies.
Graph to show how much longer an investor would stay in an ESG asset
Source: Schroder Global Investor Study
Jessica Ground, global head of responsible investing at Schroders, said: “While many policymakers are concerned about the rise of short-termism in markets, encouragingly, those surveyed said they would stay invested in ESG philosophies longer than they would in other investments.”
“It is important that investors recognise the value of being invested for the long term and this is especially relevant when considering ESG factors.” 
Yet, the biggest driver for fund selection by those surveyed was being able to deliver the highest potential total returns. UK investors rated ESG issues as less important when making an investment decision, than tangible, long-term growth, the study found.
But Waterman does not see this as a separate issue, noting that companies and funds dealing in structural ESG changes will be better off in the long-term.
“People tend to see it as a binary – they think I can either invest sustainably or I can invest for a return and that perception is quite widely held.”
“We say that a well-managed company that cares about the world in which it operates in should have a better long-term future and that will translate to better financial returns for investors.”
Ground added: “The interest in ESG and corporate governance issues for investors only looks set to grow given its prevalence amongst millennials.”
“While returns are still the most important issue, ESG’s importance to end investors means that these factors are too big for any adviser to ignore.”
Waterman added: “ESG may feel just like a trend or a portion of the investment universe at the moment but within 15 years I personally think that it’s just going to be mainstream. It feels like we’re at that tipping point where it goes from niche into the mainstream.”
However, the take-up of ethical-only strategies remains low, with net retail sales of ethical funds at £78m in October 2016, according to Investment Association data.
With funds under management of £12.1bn at the end of October, the ethical segment represented just 1.2 per cent of total industry assets.