Investors turn their back on ESG investing amid market volatility

Investors are increasingly looking to sustainable investments and are unwilling to pay a premium, instead prioritizing returns, new research finds.

A survey by broker Charles Schwab shows that 67 percent of UK investors are more concerned with maximizing the return on their investments than with their sustainability.

It marks a 7 percent drop in two years as investors grapple with the cost of living crisis and inflation eroding their piggy banks.

As of December 2021, 55 percent of investors prioritized investments that comply with environmental, social and corporate governance (ESG) principles, regardless of their performance.

This is down 8 percent in just a year, with two-thirds now looking for higher returns to navigate market volatility.

Once the darling of the investment world, ESG funds have fallen out of favor this year, with investors taking in more money than they brought in for the first time in more than a decade.

Investors were driven by ESG during the pandemic, but sentiment has soured since natural resource prices and prices have started to recover.

ESG funds have also suffered from the shift to value stocks as interest rates rise, as they invest heavily in growth sectors.

A number of popular ESG funds have huge technology companies like Microsoft in their portfolios, making it difficult to avoid the impact of the technology crisis.

Only 65 percent of investors think ESG investments provide better returns, and only half of investors are willing to shoulder the additional costs of ESG funds, down 8 percent from December 2021.

Last year, the global ESG fund returned -13.70 percent, while a basket of so-called sinful stocks peddling tobacco and fossil fuels returned 16.3 percent and has begun to catch up with ESG funds over the past decade.

The number of investors taking ESG into account when making new investments is also decreasing and has fallen by 6 percent to 38 percent since December 2021.

Older investors are more skeptical of sustainable investing: Only 23 percent of “Boomer” investors are likely to consider ESG factors when investing.

This is followed by 32 percent of Gen X investors and 49 percent and 50 percent of Millennial and Gen Z investors, respectively.

Interest in ESG funds has been waning for some time, largely due to the economic situation, but greenwashing claims have also been of little help.

Last year, the Financial Conduct Authority announced plans to introduce new rules to combat “greenwashing” in mutual funds, including new restrictions on the use of the term ESG.

Funds with an ESG label are often, but not always, stocked with stocks such as global mining giants, gambling companies and tobacco companies.

Charles Schwab UK managing director Richard Flynn said: “As the need to maximize returns looks increasingly important amid the cost-of-living crisis, fewer investors appear to be taking ESG-related considerations into account in their investment decisions. .

Return on investment is increasingly being questioned, with the fees often associated with sustainable investments actively discouraging investors in this current climate.

“It will be interesting to see how any economic recovery and reduction in inflation will affect this attitude in years to come.”