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May 22, 2023

ESG appeal diminishing among UK retail investors, says investment platform

Euronext NV stock exchange in Paris, France
Euronext NV stock exchange in Paris, France. Retail investors are shying away from ESG-focused investments. (Photo: Nathan Laine/Bloomberg/Fotoware)

A survey by Charles Schwab shows decline in ESG considerations from investors, although some in the industry have suggested this reflects a temporary trend due to generational differences.

More than two-thirds of UK retail investors prioritise investment returns over selecting sustainable investments, according to investment platform Charles Schwab UK.

During the past two years, their interest in environmental, sustainable and governance factors has reduced, the platform said, although the majority still say they believe that companies with good ESG characteristics represent appealing investment propositions. 

According to a survey of 1,000 UK investors, 68 per cent of respondents valued companies with strong ESG credentials as attractive investments, compared with the 75 per cent of respondents who backed this view in February 2021.

“With the need to maximise returns seemingly growing in importance amid the cost of living crisis, fewer investors seem to be factoring ESG-related considerations into their investment decisions,” said Charles Schwab UK managing director Richard Flynn. 

“The return on investment is increasingly being called into question, with the fees often associated with sustainable investments now actively discouraging investors in this current climate.” Sixty-five per cent of respondents said ESG investments provide better returns, compared with 71 per cent in December 2021, according to the survey.

Fewer investors now prioritise ESG investments irrespective of their performance. In December 2021, 55 per cent prioritised ESG investments regardless of whether they underperformed, but this has fallen by 8 per cent in just over a year.

But the UK Sustainable Investment and Finance Association’s chief executive James Alexander told Sustainable Views that his own organisation’s private polling of UK retail savers since 2010 had indicated an increasing desire for investment returns that also have a positive environmental and social impact.

“Savers continue to show interest in a variety of sustainable investing approaches, though a number of barriers remain in place,” he said. 

“The multi-faceted and various dimensions of sustainability is one example, and there is also far more work to be done to enhance savers’ understanding and confidence in sustainable investments in the UK’s market.”

Scottish Widows’ head of responsible investments and stewardship Maria Nazarova-Doyle also disputed the overall trend put forward by Charles Schwab UK.

“I suspect that seeing that over a very short term there is profit maximisation to be had, this tempted retail investors to pivot away from sustainable investments temporarily”, she told Sustainable Views.

The survey also revealed differences in attitudes towards ESG across generations, with less than a quarter of the boomer generation being likely to consider ESG when investing. 

“I can’t help but wonder if proportionally there are more people now in that age group who still have means to invest while the younger generations have been caught by the cost of living crisis, leading to this skew in results,” Nazarova-Doyle continued.

Just 23 per cent of the boomer generation, formed of people who are now between 59 and 77 years old, is likely to consider ESG when investing, the survey said, compared with 49 per cent of millennials and half of Gen Z.

“It is very possible that investor views haven’t shifted at all, but we just have retail investor mass-dominated by the older generation who tend to prioritise fees and short-term profit over longer-term sustainable outcomes”, Nazarova-Doyle said.

Only half of Charles Schwab UK’s survey’s respondents said they are willing to pay additional fees for ESG investments, representing an 8 per cent decline compared with December 2021.

Georgia Stewart, chief executive officer of platform Tumelo, told Sustainable Views: “Whether any generation takes ESG into consideration when selecting investments is likely to be much more about the user experience of the platform, and communication from the platform or the industry at large, than anything else.” 

“The state of user experience — especially as it relates to ESG — in the retail platform market is poor”, she added.

A service from the Financial Times