Investor knowledge gap

Aligning investments with their personal values and ethical principles is an ongoing consideration for many investors. However, navigating the complex landscape of Environmental, Social, and Governance (ESG) investing can be challenging. Based on our latest research, we look at the knowledge gaps that exist among investors regarding ESG products and terminology, which highlight the need for improved guidance and support.

Low awareness of ESG terminology and product objectives

Our study reveals a significant lack of awareness and understanding of key ESG-related terms among investors. On average, only 37% of those surveyed had heard of the term "ESG", standing at only 26% for European investors and 47% for Asian investors. The figures were even lower for other commonly used terms in the industry, such as responsible investing and impact investing.

This gap in awareness, and therefore understanding of what these terms mean, sets the stage for confusion surrounding the differences between various sustainable investing approaches.

And the knowledge gap extends beyond terminology alone. The study found that even among investors who currently hold ESG funds, only 30% globally reported being fully aware of what the ESG aims and objectives of their funds are, with European investors at 26% and Asian investors at 33%. This disconnect between investors' demand for transparency and their actual knowledge about the products they own is a cause for concern, as it can lead to misperceptions and poor investment outcomes during periods of economic uncertainty or underperformance.

The shift in adviser-client dynamics

As investors seek to bridge this knowledge gap, the dynamics between financial advisers and clients have undergone a notable shift. Compared to 2021, the number of adviser-initiated conversations about ESG or responsible investment factors has decreased from 40% to 38% globally (from 38% to 35% in Europe and from 42% to 40% in Asia). Conversely, there has been a comparable increase in investor-initiated conversations, indicating a growing interest and demand for information from investors themselves.

Financial advisers play a crucial role in bridging the knowledge gap and guiding investors towards responsible investing choices that align with their values and preferences. With regional and personal variations in investor priorities, advisers must be prepared to tailor their communication and guidance to address the specific needs and preferences of their clients. With 26% of European investors and 30% of Asian investors considering that if financial advisers discusseding ESG with clients it would make it easier for people to invest in responsible or ethical investments, proactive adviser engagement is clearly very important.

Enhancing adviser knowledge and fostering collaboration

To address the knowledge gap, and to meet the demand for alignment of investments with personal ethical values, it is important to provide financial advisers with comprehensive material and resources. Naturally, investment providers can also play a crucial role in addressing the knowledge gap by providing clear and transparent communication about the aims, objectives, and strategies of their ESG products.

This clear communication will support the necessary continuous learning that advisers need in order to stay up-to-date with the latest developments in the responsible investing space. This in turn will help them effectively guide investors through the complexities of ESG products, explain the nuances of different approaches, and recommend solutions that align with their clients' values and preferences.