New research has found that wealthy private investors are more likely to invest in companies with high sustainability ratings.

Companies with a good sustainability rating received 15% more investment per month over the three-year period 2016-2019, compared to those with a low rating.

The research stemmed from Sustainable Investing Workshops run for ABN AMRO by Saïd Business School, designed to help the bank’s staff gain a deeper understanding of ESG and Impact Investing. The ongoing programme, taught by Amir Amel-Zadeh and Henry Gonzalez, has so far trained over 900 of the bank’s employees.

Amel-Zadeh commented: “Our research shows that sustainability matters to investors and the importance of making them aware of the social and environmental impact of the companies they invest in. It also demonstrates the increasing influence of sustainability ratings agencies in directing capital towards more sustainable companies.”

ABN AMRO’s sustainability scores consist of Environmental, Social and Governance (ESG) ratings that are awarded to companies by a ratings agency, while any controversies in the company’s history are also factored in. If the scores improve, the researchers found that investors react by increasing their investment, while a deteriorating score corresponds with decreasing investments.

Research from US funds data firm Morningstar reaffirms investor interest in sustainability.

The latest Morningstar Global Sustainable Fund Flows report reveals investors continued to pour money into sustainable funds in the first three months of 2020, even as the coronavirus pandemic progressed.

In the report, Morningstar analysed inflows across 3,297 open-ended funds and ETFs using ESG criteria in their investment strategy, pursuing a sustainability-related theme, or seeking to make a positive impact alongside a financial return.

Global investors put $45.6 billion into funds focused ESG in the first quarter of the year. This compares with global outflows of $384.7 billion for the overall fund universe.

Total assets in sustainable funds stood at $841 billion at the end of March. While that is down 12% from the all-time high of $960 billion reached at the end of 2019, assets in the wider fund universe took a greater hit, falling by 18% is the Covid-19 crisis.

There has been a mixed reaction from advisers. Some say their clients have had little or no interest investing in sustainability or ESG products.

Kerstin Engler, senior wealth manager at Geneva Management Group says: “Investors are dealing with their current investments – be it the survival of their companies or their bankable assets – their approach is fairly short-term.

“We have discussions with clients whether the pandemic will change the world and the corporate landscape/investment opportunities – they are thinking about sectors (biotech, robotics, gaming), but there’s very little talk about ESG.”

However, according to research from FE fundinfo, a global fund data and technology firm advisers believe that there is a growing demand for ESG investments coming from investors themselves.

Over a third of advisers (36%) believe the growth in ESG is primarily investor led, while just 7% say it is being driven by institutional pressure alone. Around 38% said it was primarily a mixture of investor demand and institutional offerings.

In addition to this, many financial advisers (82%) believe the number of ESG propositions will increase over the next year and many are already taking steps to meet client demand. More than half say they already offer ESG as part of their investment propositions, while a further 37% say they plan to do so in the immediate future.

Mikkel Bates, regulations manager at FE fundinfo says: “In the future we will reach the stage where ‘ESG’ as a term will cease to be. It will be expected as ‘the norm’ by investors and will be provided by fund managers as part of the status quo. Most funds will factor it into their propositions so that it will no longer be considered a ‘specialist’ factor.”

Further reading

Half of advisers unaware of upcoming ESG regulatory requirements

Coronavirus crisis adds urgency to sustainable investing agenda