Investors say they take human-caused global warming and other ESG concerns seriously, but many aren't backing up their commitment with money, citing worries about "greenwashing" and other concerns.

High net worth individuals have an appetite for ESG investing but doubt whether these notions live up to the billing – due to the fear of “greenwashing,” for example. This prevents people from putting money into the space, a survey finds.

According to Saltus, a UK wealth manager, its survey of more than 1,000 people in the UK with investable assets of more than £250,000 ($313,184) found that 80 per cent see climate change as a priority. Of the 44 per cent of respondents who invest in an ESG framework, there are rising levels of scepticism over the robustness and legitimacy of green and social impact funds, as well as high levels of apathy.  

Of those respondents that do not invest in ESG, last year among the top reasons were – “they do not generate sufficient returns” (30 per cent) and “I haven’t got round to it yet" (30 per cent). However, the number of respondents who said they think “sustainable investing is just hype,” who do not believe ESG investments are “truly environmentally friendly,” and doing so will be classed as “greenwashing,” have all increased significantly, the report said.

ESG investing, which often excludes sectors such as fossil fuels, has been a popular financial sector topic in recent years; wealth and asset managers have sought to encourage new, often younger clients thought to be fired up about the topic. However, a period of rapidly rising energy prices, which some blame on green transition policies ("net zero") as well as Russia’s invasion of Ukraine last year, have been uncomfortable for ESG.

Responsible investing funds were hit by chillier economic conditions as interest rates rose last year. These funds tended to tilt towards tech stocks and not hold energy stocks – not a beneficial outcome because energy stocks were among the few to rise in 2022. The ESG drive is politically controversial: 25 US states say a Department of Labor rule allowing retirement plans to consider ESG factors in making investments will jeopardise retirement savings and should be struck down. (This news service has reflected on developments here.)

Changing priorities
“Concern about ESG investing is perhaps an inevitable consequence of the sector gaining maturity and being held to the same standards as other parts of the portfolio,” Mike Stimpson, partner at Saltus said. “It seems likely that this sector will be a permanent feature of many investors’ decision-making. This kind of questioning is consistent with the approach a robust manager would take with any investment, but it does speak to the need for transparency and a common set of standards and definitions.”

“Interestingly, despite our data revealing Millennials are driving the popularity of ESG investments, even they aren’t immune to this scepticism. They, like most of the respondents, state that a lack of trust and returns in the products are the main reasons for not investing in this space – rather than a lack of appetite for ESG investments overall,” he said.  

Respondents included: 2,007 UK 18+ respondents – 1,002 who have £250k+ investable assets, as well as 1,005 with investable assets under £250,000.