Sustainable Investing Falls Out of Favour in 2023

Published / Last Updated on 09/06/2023

Environmentally friendly, socially responsible, and corporate governance (ESG) investing or sustainable and green investment is falling out of favour according to the latest Schroeder ‘Active Pulse’ survey.

This part of the survey is a barometer for client demand via financial advisers for investing in a sustainable manner.  The survey reached out to 180 financial advisers from 150 firms and found that in November 2022, 51% of clients were happy to discuss sustainable investing compared to 32% of investing clients today.

Advisers are also more pessimistic than they were about sustainable investing with 37% becoming more sceptical despite 27% of advisers suggesting demand has not changed.

That said, 13% of clients are still raising sustainable investment without being prompted, this is an increase from 10%.

Why the increased demand over the last few years?

  • ESG demand has been prompted by sustainability being continually in the news as well as:
  • UK signing Paris Climate Agreement and targeting net zero emissions by 2050.
  • Larger UK companies are now required to publish an annual report on their progress towards lower emissions and future plans to reduce emissions even further.
  • Via the Financial Conduct Authority (FCA), fund managers are required to make investment funds greener as well as reporting annually on the same as well as financial advisers now being required to discuss ESG with their clients.
  • The energy crisis has prompted us all to think about our energy and fuel consumption as well as ways that we can become greener.
  • Energy efficient homes are now a legal requirement for landlords to reduce energy costs for tenants.
  • More and more of us are exploring switching from combustion engine vehicles to electric vehicles.
  • Green energy from wind and solar.

Why the fall in demand and interest?

  • Poor investment performance in the ESG sector.
  • Sceptics taking over as news seems to regularly appear of companies that are ‘greenwashing’ i.e., they are pretending to be greener than they are.
  • Pockets are tightening with the cost-of-living crisis and ESG investing is more expensive.

By way of an example, not far from our head office in Cornwall, there is a wind farm development in Torbay (Devon) that is due for completion in 2024.  Sadly, this valuable source of sustainable energy must wait to be plugged into the National Grid as there is currently a backlog of 5 years.  In short, real revenue and profit for the investment made over the last few years may not ‘come on stream’ for another 5 years.  This is perhaps an example of why investment returns for ESG funds are negative at present.

Short term – we cannot see things improving.

Medium and longer term – we are confident of strong capital growth and income as projects come on stream over the coming years.

In 15 years or so, we will likely look back and wonder why we ever worried about ESG investing as it will then be mainstream and part of the DNA of the country rather than a new, growing industry, much in the same way as the ‘dotcom bubble’ concerns in the ‘noughties’, where now technology dominates our everyday lives and more so now with Artificial Intelligence being invested in heavily by many firms globally.

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