The number of private investors considering ESG when investing fell for the third year in a row in 2024, the Association of Investment Companies’ (AIC) ESG Attitudes Tracker has shown.

The tracker, which surveyed financial advisers, wealth managers, and private investors, revealed that the proportion of investors considering ESG had declined to less than half (48 per cent).

This represented the third consecutive year of falling ESG considerations, decreasing from 66 per cent in 2021 to 60 per cent in 2022, and to 53 per cent in 2023.

The analysis, conducted by Research in Finance for the AIC, showed that 43 per cent of investors considered themselves ‘fans’ of ESG investing, down from 60 per cent in 2021, 51 per cent in 2022, and 50 per cent in 2023.

Investors highlighted concerns about ESG investment performance, with only 17 per cent believing ESG investing was likely to improve performance, down from 22 per cent last year.

Governance has grown in importance among investors, as the ‘G’ in ESG is now tying with environmental issues with 37 per cent considering each to be important.

Social issues continued to trail the other two aspects of ESG, with 28 per cent of respondents considering them important when investing.

Transparency and disclosure were now rated at the number one ESG issue, with 60 per cent citing them as important, higher than any previous year.

Climate change fell to second place, being important to 54 per cent of respondents, followed by pollution (47 per cent), human rights (44 per cent), and waste/preserving resources (39 per cent).

The survey also identified a difference in attitudes among age cohorts, as 53 per cent of people younger than 45 considered ESG when investing compared to 43 per cent of people ahead 65 and older.

“Our ESG Attitudes Tracker shows that investors’ love affair with ESG investing continues to cool,” commented AIC research director, Nick Britton.

“That doesn’t mean they reject it altogether though. To extend the metaphor, they are thinking about the bits of ESG they like and those they don’t, and deciding if they want to make this a longer-term relationship.

“One interesting aspect of this year’s research is that almost all the governance issues have increased in importance for investors. Investors are increasingly savvy and recognise that governance is the bedrock of ESG investing: put another way, you need the G before you can have the E and the S.

“Though passions for ESG may have cooled, our research also suggests that love has not turned to hate. Few investors are actively hostile to ESG: for those who aren’t so engaged, it would be more accurate to describe them as sceptical, uninterested, or prioritising investment performance over ESG issues.”

Although the AIC identified a fall in enthusiasm for ESG, respondents were found to be more likely to associate ESG with positive words such as ‘sustainable’ (66 per cent) and ‘responsible’ (59 per cent), than negative ones such as ‘woke’ (26 per cent) and ‘pointless’ (9 per cent).

Younger investors were more likely to associate ESG with positive words and phrases, as 76 per cent of those aged under 45 associated ESG with being ‘responsible’ compared to 48 per cent of people aged 65 and older.

Furthermore, just 13 per cent of younger investors associated ESG with the word ‘woke’, compared to 31 per cent of older investors.

However, low levels of trust and concerns about greenwashing remained, with 61 per cent of respondents not convinced by ESG claims from funds and 67 per cent concerned about greenwashing.

Child labour, pornography, and oppressive regimes remain the top three red flags for investors when considering investments to exclude or try and avoid.

A quarter (25 per cent) of investors fully excluding tobacco from their portfolios, while a further 31 per cent try to avoid it.

Half (50 per cent) of investors believed that exclusion was not the answer, and it was better to engage with companies to try and influence them.

However, 34 per cent thought there were certain industries or activities that should always be excluded from funds with an ESG or sustainability objective.

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