ESG Investing, formerly a niche practice, has grown into a significant and quickly expanding market area. Despite the interest in ESG Investing’s growth, many investors are still inhibited by the concern of losing out on potential gains.
This is partly due to the fact that ESG Investing is the subject of various fallacies. We identified 3 of the most common misconceptions and have addressed them below:
Misconception #1:
ESG investors must forgo big profits in favour of investments that align with their principles.
ESG Investing is the business opportunity of the century, claims the inaugural European Sustainable Finance Series research from PwC Luxembourg. It demonstrates, specifically, that the pandemic’s effect on the ESG market was less severe than on the market as a whole.
A report from financial services company, Morningstar, supports PwC’s position. Their own ESG-screened indices often exceed their broad market non-ESG equivalents, with 57 of 65 ESG indexes (88%) outperforming them during the five years until the end of 2020.
Misconception #2:
Young people are the only ones adopting ESG Investing.
Sustainable Investing strategies appear to be particularly appealing to younger generations, however, studies from various institutions show that baby boomers and generation X investors are equally interested in ESG Investing and many of them consider sustainability factors when selecting an investment product to ensure they make a positive impact with their investments.
Additionally, according to research by the UK’s Department for International Development, “68% of UK savers wanted their investments to consider the impact on people and planet alongside financial performance”. This demonstrates that investors of all ages are interested in learning about the social impact of their investments in addition to the financial return on their investment portfolios.
Misconception #3:
Investing in ESG is pricey.
Price is one issue that newcomers to ESG Investing regularly raise. Exchange-traded funds, or EFTs, are generally becoming more readily available to savers and regular investors as inexpensive sustainable investing solutions. EFTs are financial instruments often designed to reflect a particular market sector, frequently indexes, and increasingly include sustainability.
The average cost ratio for ESG funds tends to be lower than the average for non-ESG funds, according to Morningstar’s analysis of a number of different funds and a comparison of their average expense ratios. Comparing ESG funds to non-ESG funds, costs are just slightly higher than average for ESG funds.
Even while ESG funds are often more expensive than other funds, the price differences are typically negligible and are due to the fact that most ESG funds are typically actively managed and not particularly large.
We prioritise investment solutions designed for our customers’ specific needs, and will always ensure that they bring you the best financial returns whilst also having a positive impact.
To find out more about our ESG Investment options, contact us now and let us arrange to meet so that we can allay any concerns you may have.