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ESG support increases despite market volatility
Investors ready to choose higher-rated impact investments even with lower potential financial returns
The Asset 10 Nov 2022

More than half of investors (53%) regard climate change as the most important factor affecting their investment decisions, up from 47% last year, and more private and business clients (78%) are concerned about the negative impact climate change has on the global economy. This is up from 74% in 2021, according to a recent survey. 

As well, many investors are concerned climate change is already having a severe impact on the global economy, or will have, in the next 10 years if left unchallenged, finds the 2022 ESG client survey, published by Deutsche Bank’s private bank chief investment office. It surveyed 900 of its clients from around the world between the end of July and August this year. 

Clients were willing to choose higher-rated environmental, social and governance (ESG) investments, even if the potential financial return is lower. Indeed, 42% of investors says they will choose a company and an AAA ESG rating with 4% expected annual return, rather than a CCC company with 8% expected return.

The survey tracked changes in attitudes over the past 12 months. Compared with the previous year’s survey, key findings are:

  • Environmental issues remain the top priority. Across age groups and among men and women, more investors (50%) see environmental issues as most important in ESG investment, up from 46% last year. Then 28% put governance at the top of the list, similar to last year. The emphasis on E and G came at the expense of the S, social issues, which fell to 23%, versus 27% in 2021.
  • Climate change is seen as the most important problem. Slightly over half (53%) of respondents regard climate change as the most important factor in investment decision making, up from 47% last year. Again, climate change ranked above ocean pollution (15%), land degradation (21%) and biodiversity loss (7%), which fell from 11% last year.
  • Investors confirm their commitment to ESG. Some 78% of investors agreed that their investments should have a positive impact on the world, up 3 percentage points on last year’s 75%.
  • More respondents still agree that ESG can manage risk in a portfolio than disagree. Under half (44%) of respondents strongly or slightly agree with this, down only slightly from 48% last year, and higher than the 16% who strongly or slightly disagree. But, with four in 10 respondents saying that they don’t know, or neither agree or disagree, many still have to be convinced.

The survey identified some new insights:

  • Moderate optimism for managing climate change and biodiversity loss. Just over half (51%) of investors are optimistic that humankind will be able to manage climate change through technological innovation, while 47% have faith in the power of nature-based solutions.
  • Millennials are more aware than other age groups. Almost one in four (nearly 25%) of millennials say that they have sophisticated knowledge of the concept of a net-zero emissions economy, while 21% say the same for a net-positive emissions economy.
  • Awareness of new concepts is accompanied by knowledge shortfalls. Only 18% of survey respondents claim sophisticated or good knowledge of nature-based solutions, while 20% claim the same for natural capital.
  • Biodiversity issues seen as important for portfolio returns and risks. And 41% agree that including biodiversity considerations into investment decisions will boost portfolio returns, whereas over 60% think it would reduce nature-related risks.
  • Investors are looking to financial institutions to help manage the transition journey. And 68% of investors expect their financial institution to accurately measure and manage nature-related risks; 75% expect appropriate protection of portfolios. But financial institutions can only be one driver – alongside individual investors, corporates and governments – of necessary economic change. Among others, greater investor knowledge is necessary to achieve this goal.

“What is most interesting about this year’s findings is that client expectations of ESG are growing, not diminishing, even as the ESG universe reorientates through debate and development, and while volatility persists in capital markets,” says Markus Müller, the private bank’s ESG chief investment officer and head of the chief investment office. “While ESG ratings can be widely debated, this finding shows us that investors have significant expectations for real-world returns, beyond financial returns.”

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