Interest in ESG-themed investment products continues to be strong but has plateaued in the past two years, even among younger investors, who have been the most enthusiastic about environmental, social and governance (ESG) strategies, research firm Cerulli said Tuesday.
However, according to the latest Cerulli Edge—The Americas Asset and Wealth Management Edition, the opportunity still exists to provide advice in line with broader principles of responsible investing.
Preference for ESG investing dropped in 2023, from 48% to 46%, as political and financial scrutiny increased, Cerulli pointed out.
Investors under 40 years old “are still perceived as the most passionate group when it comes to ESG-related issues,” the firm said. Among them, 66% prefer ESG-aware investing, down from 72% a year earlier, the second straight year of declining interest in that age group, according to Cerulli.
In comparison, households led by investors in their 50s remained consistent at 44% support, with 13% expressing strong support, according to Cerulli.
However, a large opportunity for ESG-branded advice persists among millennials as they become increasingly wealthy and more likely to seek formal financial advice.
Forty-nine percent of investors preferred not to invest in companies that made products they found objectionable.
Cerulli’s research found that 49% of investors preferred not to invest in companies that made products they found objectionable. That included 42% of self-directed investors.
The disdain for objectionable companies was strongest among those with under $250,000 in investable assets (54%), but was relatively popular across the asset spectrum, with investors who held $1 million to $2 million in investable assets the least likely (at 46%) to have that preference, according to Cerulli.
Also, even investors not interested in ESG investing remained concerned with ESG-related issues. Overall, 67% of investors said they preferred to invest in companies that paid their workers a fair or living wage.
Services that help investors search for funds using ESG screens, including those that promote fair wages, may help attract ESG-friendly investors, Cerulli pointed out.
“A sizable population of investors who place value in ESG screens still exists, particularly those centered on environmental and living wage issues.”
– Scott Smith, Senior Director, Advice Relationships, Cerulli
“A sizable population of investors who place value in ESG screens still exists, particularly those centered on environmental and living wage issues, even if they otherwise might not be interested in becoming ESG investors,” according to Scott Smith, Senior Director, Advice Relationships at Cerulli.
That, he said, “creates an opening for both advisors and providers to help interested clients find investments that cater to those values, thereby creating a more tailored portfolio solution while also getting to know their clients as people beyond a simple transactional relationship.”
In the U.S., ESG-themed ETFs now comprise 26% of total ESG funds, up from 11% in 2019 and following broader trends of inflows into ETFs and away from mutual funds, the report said.
Another finding cited in the report: Although nearly 50% of advisors incorporate ESG strategies into their client portfolios, the “actual impact remains limited, with ESG considerations influencing only a small percentage of client accounts (6.6%) and assets (8%).”
Meanwhile, investment products touting ESG considerations have “failed to gain much traction in Latin America, despite the introduction of significant regulation and marketing efforts to promote and support ESG” there, according to Cerulli.
Jeff Berman, Contributing Editor and Reporter at Wealth Solutions Report, can be reached at jberman@wealthsolutionsreport.com.
