The switch to a more sustainable society is undeniably spreading across the world. More people than ever recycle, avoid single-use plastics, and consider their carbon footprint before buying basic food items.
And firms are adapting to meet this rising demand.
If you go to any store, physical or online, chances are that an array of green products will be marketed to you – from metal and glass straws, silicone food bags, plant-derived washing-up sponges and bamboo toothbrushes.
Several of the above items now have a place in my home, alongside ecological cleaning products and several delivery service subscriptions aimed at tackling food surplus and waste.
But has this frenzy made it to the world of financial advice yet?
Products
According to research by International Adviser, which polled 51 advisory firms across the UK, demand is growing for environmental, social and governance (ESG) investing solutions.
When asked about what products are not widely available and that they would like to see in 2021, many respondents lamented a lack of sustainable options.
They didn’t point to a particular theme within the ESG space, but instead asked for more ESG strategies, active and passive funds, and multi-asset propositions.
Pensions and savings were also often cited, especially international plans, alongside income products.
What do investors want?
While financial advisers would like to see more ESG offerings, a recent study by Aegon found that a very small number of consumers is actively investing in such options.
In a poll of 5,687 individuals, the pension provider discovered that only 15% invested in sustainable vehicles to support a greener and fairer society.
They seemed to be more likely to undertake tangible, daily actions such as recycling (95%) or avoiding single-use plastics (59%) when it comes to switching to more sustainable activities, rather than applying the philosophy to their money.
Despite that, 77% said that climate change is an important risk to keep in mind when investing. This suggests that there may be a disconnect between people’s beliefs and the way their savings are managed.
But the demand and shift towards EGS investment products is soaring regardless of how low it is on people’s priority lists.
In 2020 alone, Aegon found that UK savers put, on average, £1bn ($1.4bn, €1.1bn) a month in ESG funds.
That is a 66% increase from 2019.
Additionally, 41% of financial advisers reported a rise in client demand for sustainable products in the pension provider’s previous research, complementing IA’s findings that if demand is on the up, so should the number of options available be.
A matter of meanings
Tim Orton, managing director of investment solutions at Aegon UK, said: “It’s clear few people understand what is meant by ESG investing and that’s not surprising given that within the investment industry there are debates about what it constitutes.
“At the moment, it’s the more tangible day-to-day acts like recycling and avoiding single use plastic that people think of when considering how they’re contributing to a more sustainable planet.
“But the reality is many people will now have a proportion of their pension in ESG strategies – although they may not be aware that this is the case. The industry has a role to play in communicating how ESG investing works and to spell out the benefits of investing in this way.
“Over the long-term, investing in a sustainable way can have a meaningful impact on how businesses are run and how they interact with society and the environment. It can also have a positive impact on the value of people’s savings.
“These actions will have a greater impact if we can engage customers and help them understand how their savings are contributing to a more sustainable world, and how easy it can be to select a fund with a sustainable investment agenda.”
