Intermediaries expect clients to remain invested in sustainable funds

UK intermediaries expect clients that are already invested in sustainable funds to remain invested or increase their allocations over the next 12 months, analysis from EdenTree Investment Management and Research in Finance has shown.

The study of 100 discretionary fund managers (DFM) and 100 investment advisers (IA) found that while 64 per cent believed sustainable investing was currently out of favour, 73 per cent expected clients with sustainable investments to stay the course or increase allocations.

Looking at a longer timeframe, 84 per cent of respondents expected continued or increased investment in sustainable funds over the next three to five years.

When asked about overall sentiment towards sustainable investment, 25 per cent said it was already in favour and 64 per cent felt it was out of favour but likely to return.

Of those expecting a return to favour, 57 per cent expected this to occur within three to five years, while 8 per cent believed it would be within 12 months and 29 per cent expected it to take one to two years.

IAs were more positive, with 36 per cent saying sustainable investing was currently in favour compared to 13 per cent of DFMs, while 15 per cent expect demand to return within 12 months and 36 per cent within one to two years, versus 3 per cent and 24 per cent respectively for DFMs, who were more likely to expect a recovery over three to five years (64 per cent).

Performance and geopolitical concerns were the factors most frequently cited as affecting demand, while a greater awareness of sustainability-related issues and climate concerns were found to be the primary drivers of increased interest.

IAs were also more positive about the near-term outlook for sustainable investment demand, with 80 per cent expecting clients to remain invested or increase allocations compared to 65 per cent of DFMs.

Furthermore, just 14 per cent of IAs believed clients would reduce allocations, compared to 31 per cent of DFMs.

However, over the longer term, 86 per cent of IAs and 81 per cent of DFMs expected clients to remain invested or increase allocations over the next three to five years.

“While the mood may be more cautious today, the results of this survey echo what clients are telling us day-to-day: demand for sustainable investing is far from over,” commented EdenTree Investment Management head of distribution, Philip Baker.

“And the fact that advisers - who spend the most time in conversation with end clients - are more upbeat in the near term, could suggest the demand conversation is starting to turn.

“What the findings do show clearly is that, despite understandable uncertainty around regulation, short-term performance and geopolitical disruption, sustainable investors are staying the course, and intermediaries increasingly expect allocations to rise again over time, signalling less a retreat than a reset, with a greater focus on performance, credibility and long-term value.”

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