Investment priorities: the role of ESG

Individual investors are faced with a multitude of factors to consider, when choosing with whom and how to invest. These include assessing the potential investment providers, as well as the specific product features they see as important. Our latest research shows that product fees and flexibility remain the most important factors influencing investment choices, however there is also a strong desire among investors to align their investments with their personal values and ethical principles.

Fees and flexibility the primary considerations

Amidst global financial uncertainties, investors across Europe and Asia have ranked the strength and stability of the investment provider or fund manager as the top priority when making an investment. In Europe, 55% of investors cited this as the most important provider feature, while in Asia, the figure was even higher at 63%. The least important factor was the local presence of the investment provider, highlighting that the trustworthiness and credibility of the firm was foremost in the minds of investors.

When it comes to product features, the Environmental, Social or Governance (ESG) aspects of the investment were ranked amongst the lowest factors in terms of importance, with fees and flexibility the top features considered important in both Europe and Asia.

Within the countries surveyed we did see some regional differences. Investors in the UK and Indonesia ranked regulatory protections as the most important product feature when making an investment, while investors in Belgium, Italy and Spain are more focused on guarding against the risk of losing all or most of their investment. Investors in Thailand and the Philippines were most interested in the ease of tracking their investment’s performance.

The desire for ethical alignment

While ESG factors might not currently rank as the top priority for investors when looking at product features, the research findings show a demand for investments that align with personal values and ethical principles. Across Europe and Asia, a significant portion of investors, 65% in Europe and 71% in Asia, agreed that their personal ethical views should be taken into consideration when making an investment.

But ethics by their very nature are personal to each individual, so how should investment firms build products that are aligned with these views? The research findings did highlight some areas of agreement over which industries or sectors should be excluded from investments. Across both Europe and Asia, for example, the deforestation and pornography industries remain the top sectors that people feel ESG funds should never invest in, highlighting consistent environmental and ethical attitudes towards the negative global impact of these industries. In both regions, weapon manufacturers and heavily polluting industries closely follow. In Europe 60% and 57% of respondents expressed a view against making ESG investments made in these sectors respectively. In Asia the view was similarly 55% and 54% against these sectors respectively.

However, in other areas regional differences emerge. For example, the acceptability of ESG investments in the palm oil industry varies across Asia and Europe, with stronger attitudes against this sector found in Europe at 50%, compared to just 37% in Asia. Perhaps this could be attributed to diverging views on the industry, as well as its prominence within different countries, for example the importance of the industry to Indonesia as a top global producer of palm oil.

Additionally, we saw that there was less concern over nuclear power assets being included in portfolios from European investors versus those in Asia (39% vs 44% respectively). This is perhaps a result of the continued geopolitical issues we see in Ukraine and what this could mean for broader energy security in European countries.

Aligning ethics and investment

It’s clear that aligning ethics with investment is not a one-size-fits-all approach. However, in order to address an individual’s desire that their investments should reflect their ethical standpoint, it is the investment industry's responsibility to continue to develop products that cater to a range of investor needs. From applying exclusions within their portfolios to launching impact or thematic funds that address specific topics, firms can provide investments that better reflect the diverse values and principles of their clients, while also promoting sustainable and responsible investment practices.