The ethical investment market has expanded significantly over recent years, with net retail sales of ethical funds reaching a record high of £1.1 billion in 2018. Ethical funds accounted for over 12 per cent of all sales over the first 11 months of 2018, a sharp increase on the 2 per cent of sales they accounted for in 2017. This newfound development is acknowledged by Financial Advisers themselves. A report from Aberdeen Standard found that half (50%) of Financial Advisers surveyed recognise a general trend towards ‘investing for good’. In addition, a third (34%) of participants responded to say that they were likely to focus on Environmental, Social and Governance (ESG) issues and values-driven investments as a business offering in the next two years.
However, the ethical investment market has far from reached its potential and there is much more room for future growth. This failure to fulfil the market’s potential is, in part, because Financial Advisers and Wealth Managers lack the necessary information on this investment approach. As a result, flows into investment funds do not match the level of interest within the investor population. For example, a First State Investment report titled ‘Millennials and Responsible Investment’ specifies that 80% of the millennials surveyed that don’t already invest in sustainable and responsible products are either ‘interested’ or ‘very interested’ and 78% of those surveyed say that expertise in responsible investment would be a reason for choosing one asset manager/financial services provider over another. Nevertheless, many Financial Advisers feel unfamiliar with this sector of the market, resulting in a failure to invest in ethical funds. The aforementioned Aberdeen Standard Summary Research report also explained that 57% of the Financial Advisers surveyed are not well informed about how or why investment managers integrate ESG factors into the investment process. Furthermore, just 21% agreed that ESG integration can result in positive outcomes in terms of investment performance; the majority (69%) were uncertain.
This indicates that, due a lack of understanding amongst Financial Advisers and Wealth Managers, the public’s desire for ethically conscious investments is not being reflected in their portfolios.