UK investors' habits are evolving amid a changing sustainable and societal landscape. This has seen a rise in a generation of conscious investors, for whom environment, social and governance (ESG) factors matter.
These factors are playing an increasingly important role in the decisions of UK investors, especially for millennials, who have influenced societal changes and spurred a growth in sustainable investing for years.
As a result, almost half (48%) of young people aged between 18 and 34 plan to make ESG investment by 2025, new research by Butterfield Mortgages Limited (BML) has found.
The study of 735 UK investors — who have portfolios worth in excess of £20,000 ($28,380), excluding primary property, savings, pensions or SIPPs — found 24% had made an ESG investment in the past.
Meanwhile, 21% of respondents plan to make an ESG investment in the coming 12 months, while 25% intend to do so by 2025.
"Not only are a significant number of investors now prioritising ESG factors when making financial decisions, with many intending to make ESG investments in the coming years, but we can also see that investors are open to lower returns if their investments influence positive change," said Alpa Bhakta, CEO of BML.
ESG investments typically seek to balance positive returns against the long-term impact on society or the environment.
More than one in five (22%) investors say ESG factors have played an increasingly important role in their investment decisions over recent years. Nearly a third (29%) stated they will consider environmental or social impact of the businesses or assets they invest in moving forward.
While ESG investing has become "more prominent" in recent years, it is still in its "infancy" BML says. According to the mortgage lender "fewer than a quarter" of UK investors have entered into ESG investments.
Despite that, the ESG market is expected to rapidly grow, with the majority (52%) anticipating this by 2026.
For those that have already entered the market, the impact of their investments and the long-term societal and environment changes they will influence outweighs their monetary returns.
As such, 30% are willing to accept lower returns on an investment if it has a positive social or environmental impact, BML says.
BML’s research also found that 60% of investors want to see investment providers become more transparent about the environmental or social impact of different products or assets.
Another, 59% believe too much onus is placed on investors to back ESG causes, rather than businesses and governments driving positive change.
"There is also an important call to action here for companies to do more, not only to cater to investors’ ESG priorities, but also to improve transparency around the social and environmental footprint of the products they offer,” Bhakta added.
There has also been growing demand for ESG opportunities, driven further by the coronavirus pandemic, which has propelled many issues into the limelight.
As a result, many organisations, products and laws have come under consumer, employee, shareholder, investor and regulatory scrutiny. This has seen many firms seek funding to do better and global government's bolstering green investment.
Watch: Investing trends: why more people are looking into ESG opportunities