Majority of investors see gap between intention and action in ESG investment market

Despite rising demand for socially responsible investing, three in four investors are not confident that their current portfolios are aligned to their ESG values.

According to a report by Capital Preferences, which collected responses from a total of 908 investors from Singapore, the US, and the UK who invest with banks or financial advisors, 74% of Singaporean investors said that ESG factors are important or very important to their investment decisions, compared to 65% in the US and 63% in the UK.

Among investors in older demographics, 42% of Singaporean investors were more likely to prioritise ESG concerns are very important, compared to 19% in the US and UK.

The study revealed that ‘ESG sceptics’ stood at 26% among US investors, nearly triple that of Singaporean investors at 9%.

As part of the study, Capital Preferences used a proprietary tool to create a personalised investment map for respondents based on ESG investment criteria.

The criteria identified five investment themes, based on principles of the UN Sustainable Development Goals — Empowerment, Climate Change, Basic Needs, Natural Capital, and Ethical Behaviour.

The exercise revealed 55% of respondents have a mismatch in their current portfolio composition against their actual intention for ESG impact.

The survey also showed that many investors lack the confidence to put their ESG investment preferences into practice due to confusion over ESG terms and concepts, conflicting ratings, and a lack of guidance on how to identify the right investments in this sector.

Bernard Del Ray, co-founder and group CEO at Capital Preferences, said: “As interest in sustainable investing has grown, so has the complexity and variety of options available to investors, creating knowledge and confidence gaps within the industry and investment community. The financial services sector has a real opportunity to harness better data and insights to educate these investors.”

Ray added that financial advisors could bridge the knowledge and confidence gaps, as they usually have the highest level of interaction with investors.

“Four out of five investors we surveyed are being profiled using unsound and outdated methods, even though advances in technology allow us to create customised investor and advice profiles. The financial industry can use technology to transform investor profiling and help investors realise performance-driven ESG investing that is more closely aligned to their personal beliefs and preferences,” said Ray.

According to estimates from the Global Impact Investing Network’s 2020 report, the global market for ESG investments has grown to $715bn, a 42% jump from $502bn the year before.