Customers continue to express a strong interest in ESG issues, but ultimately financial return is their top priority, with one in five refusing to participate in sustainability if it jeopardises their return, according to new Standard Life research.
Speaking at the Corporate Adviser Mater Trust and GPP conference, Standard Life head of unit linked investment solutions Gareth Trainor said that customers continue to show strong interest in ESG issues and a clear desire to invest responsibly, but that financial return remained their primary goal.
Trainor said: “When asked what is the most important practice you as a customer takes into consideration when you’re looking at your investment solutions, 87 per cent said return, the number one answer. The number 2 answer is risk, then corporate governance, and then you’re into sustainability. It’s very easy to see the headline numbers when you ask a specific question around these things, but actually, it’s like asking, are you a good person or a bad person?
He added: “People don’t invest with us as a company to be sustainable; people invest with us to get money in retirement. That is the primary goal of why they are there. Sustainability is a secondary item, not a primary one. One out of five people we’ve surveyed don’t want anything to do with sustainability if it’s going to hurt their return.”
Standard Life’s survey showed that 65 per cent of respondents believe it is critical to invest in ways that promote positive change, such as improving a company’s impact on society, corporate governance, or climate impact. 65 per cent believe it is important to exclude companies that harm society, have poor corporate governance, or are environmentally demanding.
In comparison, 61 per cent want to invest in a way that commits to net-zero carbon emission status by 2050 or earlier. Meanwhile, 74 per cent said they believed that a company’s management of its ESG behaviour will affect its future financial performance, and 70 per cent thought that responsibly invested funds will outperform other funds in the long run.
Trainor said that while engagement and understanding is increasing, there is still a lack of confidence when dealing with pensions and investments, and many customers remain disengaged. Only 27 per cent review their pensions regularly, while 23 per cent do not review their investments at all. According to research, the most common reason for an investment review is a change in a customer’s financial solution.
Although 49 per cent are interested in investments, only 20 per cent are confident in their investments and long-term savings. 30 per cent believe that responsible funds are either slightly or significantly more expensive, and 19 per cent have a good idea if their current investments take an ESG approach. 85 per cent of respondents expect Standard Life to consider the social and environmental impact of all of their investments, not just those labelled as responsible or ESG.
Research also found that customers are less familiar with terms like ESG and values-based investing and have a better understanding of ethical, sustainable, and responsible investing, though these terms, too, require clarification. According to the survey, the primary concern of customers is financial performance, emphasising the importance of communicating the impact that material ESG factors can have on investment return.
Trainor describes how ESG can be incorporated into an investment proposition. He explained Standard Life’s sustainable multi asset solution and how it is central to its sustainable approach, beginning with excluding companies that pose a significant sustainability risk, tilting towards positive ESG outcomes such as a 50 per cent reduction in carbon emissions, and driving positive change through extensive stewardship and proxy voting.
Trainor said: “This strategy unapologetically focuses on the financial risks and opportunities of stewardship; it does not take moral judgement into account. We’re not setting up to take moral judgements that we don’t think will impact the financial return because we don’t think we can look our customers in the eye and say that is the right thing to do.”