ESG investing declining in popularity as fears of greenwashing grow

“These findings underline the importance of the regulator getting disclosure rules right, in particular the new labelling regime. A new regime with high standards that investors can rely on is essential for helping investors who care about ESG find products that align with their values and beliefs.”

Have investors just stopped caring?

The percentage of investors who say sustainability is important to them in their everyday life has barely changed since 2021. It was 69% in that year, fell to 64% in 2022, but recovered to 68% this year.

Aside from greenwashing concerns, the poorer performance of “ESG” mandates over the last two years may also have had an impact. Only 22% of investors now think ESG investing is likely to improve performance compared to 33% in 2021, and 24% think it will hurt performance versus 20% two years ago⁴.

The survey was accompanied by in-depth interviews. One 44-year-old investor said of their ESG investments: “I just thought this just isn’t for me. They weren't producing the returns that I was looking for, so I felt I'd rather do my bit for society by buying more fair-trade goods, by recycling even more, helping local society and local charitable events.”

ESG investing is also seen as risky by some investors. Nearly a third (30%) of respondents think it is likely to lead to higher risk, versus 14% who think it will lead to lower risk⁵.

Another investor said: “The ESG funds I invested in were underperforming and at my age, 70, I need to maximise my returns and I cannot take unnecessary risks. I contribute to ESG by my own lifestyle.”

Not everyone is pessimistic

Not everyone feels the same. One investor said: “A year ago I was 100% committed to performance. I now increasingly consider the wider world and wish to make more of a contribution if only by example.”

Another commented: “I believe that greenwashing has been addressed to some extent – and at least many more are wise to it.”

When respondents were asked what should be done to address greenwashing, common answers included standardised verification by a reputable third party, greater transparency, and industry regulation.

One 59-year-old investor said: “If you're going to be comparing one fund with another, then there needs to be standards. You can't let each and every one have their own definition.”

“Something major needs to change”

There is also a minority of investors for whom ESG issues are extremely important. When asked whether they agreed with the statement “I’m a fan of investments that consider ESG factors”, nearly a fifth (19%) strongly agreed⁶.

One 70-year-old investor said: “I am a very strong believer in the fact that something major needs to change. I'm not a climate denier. I think we’ve got an absolutely mega problem coming up. Not for my generation, but certainly for the ones that follow us. In a way, ESG is the only way that normal investors can impact on the big problems.”

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Notes to editors

1. The ESG Attitudes Tracker is the new name for the AIC’s annual research into investors’ attitudes and expectations around ESG investing. There have been three waves of the research conducted in 2021, 2022 and 2023 by Research in Finance. The latest wave consisted of an online survey of 407 private investors and in-depth interviews with 20 individuals selected to represent a range of views about ESG. The online survey was conducted between 19 July and 6 August 2023 and the interviews were conducted between 1 August and 14 August 2023. You can read more about the 2022 wave of the research here and the 2021 wave here.
2. Investors were asked how important environmental, social and governance issues were to them when investing, on a scale of 1 (not at all important) to 5 (extremely important). Respondents who selected 4 or 5 are counted among those who find each issue important.
3. Of the 47% of respondents who said they did not consider ESG when investing, 56% said they prioritise performance over ESG issues and 51% said they were not convinced by ESG claims from asset managers. Other reasons selected were “I’ve never really thought about ESG” (17%) and “I don’t understand how to invest with ESG considerations in mind” (8%).
4. In 2021, 33% of respondents said ESG investing was more likely to improve performance, 20% that it was more likely to worsen performance, 29% said that it was likely to have no overall impact on performance, and 18% didn’t know. In 2022, those numbers were 22%, 25%, 31% and 21% respectively, and in 2023, they were 22%, 24%, 34% and 20%.
5. In 2021, 20% of respondents said ESG investing was more likely to be lower risk, 23% that it was more likely to be higher risk, 43% that it was likely to have no impact on risk, and 14% didn’t know. In 2022, those numbers were 14%, 29%, 43% and 14% respectively, and in 2023, they were 14%, 30%, 41% and 14%.  
6. 19% strongly agreed with the statement “I’m a fan of investments that consider ESG factors”, 31% somewhat agreed, 28% neither agreed nor disagreed, 12% somewhat disagreed, 9% strongly disagreed, and 1% didn’t know.
7. The Association of Investment Companies (AIC) represents a broad range of closed-ended investment companies, incorporating investment trusts and other closed-ended investment companies and VCTs. The AIC’s members believe that the industry is best served if it is united and speaks with one voice. The AIC’s vision is for investment companies to be understood and considered by every investor. The AIC has 347 members and the industry has total assets of approximately £264 billion.
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