Despite rising flows into sustainable funds in the past few years, UK investors remain sceptical about the impact of climate change on their portfolios, according to a new survey by asset manager Schroders.
The Schroders Global Investor Study surveyed 25,000 investors from around the world with at least €10,000 (or the equivalent) to invest in the next 12 months or who have made changes to their investments within the last 10 years.
As the chart below shows, ethical funds under management has grown from £5.9bn in 2009 to £20bn at the end of July 2019, pulling in net retail inflows of more than £1bn for the past two calendar years.
The Investment Association characterises ethical funds as those, which aim to avoid companies involved in activities believed to be harmful or those that promote responsible policies.
Source: Investment Association
While the amount of money coming into the funds has increased, however, funds under management represent just 1.6 per cent of total industry assets.
Indeed, just 24 per cent ranked having money invested in sustainable investments as a first or second priority.
And it seems that UK investors are less concerned about climate change.
Around 19 per cent said it would have a significant impact on their investments, with 39 per cent believing that it would have very little or no impact.
In comparison 23 per cent of European investors and 24 per cent globally said climate change will have an impact.
In addition, 60 per cent of UK investors believe that “all investment funds should consider sustainability factors, not just those specifically designed as ‘sustainable investment funds’”.
Furthermore, around 61 per cent agreed that “individual investors like me can significantly contribute to a more sustainable world by choosing sustainable investment products”.
Meanwhile, just over half (52 per cent) said they always considered sustainability factors when selecting an investment product.
However, the survey also found that 48 per cent of UK investors either already investor or want to invest in sustainability, one of the higher-ranking European figures.
Appetite for sustainable strategies was lowest in Japan where just 26 per cent of respondents either already invest or want to invest sustainably.
India had the highest appetite for sustainable strategies where 73 per cent of respondents are invested in or plan to invest sustainably.
Jessica Ground, global head of stewardship at Schroders, said: “There remains a gulf between people’s sustainable investment aspirations and the reality of how they prioritise these factors in their investment decision-making.
“A significant proportion of investors clearly believe that sustainable investing is important, but this is yet to translate into tangible action for the majority.
She added: “This will unfortunately leave investors vulnerable to the global impacts caused by the issues such as climate change.
“It is important that asset managers and the broader industry – including the likes of policymakers globally – work with investors to ensure they can better identify the benefits of investing sustainably and, in turn, are able to access funds which will enable them to do so.”
Investors who identify themselves as being expert or advanced were more likely to invest sustainably, the survey found, with 23 per cent saying they invest sustainably compared with 11 per cent of intermediate investors and 8 per cent of beginners.
It also highlighted a common misconception, that so-called “millennials” are driving investment in sustainable funds.
Source: Schroders
Instead, it was ‘Generation X’ investors – those aged between 38-50– that were more likely to invest sustainably with 61 per cent always considering it a factor.
In contrast, 59 per cent of millennials – aged 18-37 years old – were likely to select a sustainable product and just half of ‘baby boomers’ – aged 51-70 – would consider sustainability.
Gen Xers were also the most likely to feel that their individual investments could have a direct impact in contributing to a more sustainable world, with 64 per cent agreeing. Just 60 per cent of millennials agreed and 57 per cent of baby-boomers.
Almost two-thirds of Gen Xers (65 per cent) agreed that all funds should consider sustainability factors – not just those designed as ‘sustainable investment funds’, ahead of baby-boomers (62 per cent) and millennials (60 per cent).
Nevertheless, it was the younger cohort – millennials – that was the most likely generation to consider the sustainable investment of their money as the first or second most important factor, with 27 per cent agreeing.
The ‘silent generation’ aged 71 and above were least likely to feel this way with just 14 per cent agreeing to consider sustainability as a first or second priority.