UK retail investors would allocate an average of 35% of their ideal portfolios to ESG ETFs, according to a survey from Invesco.
The survey of 1,000 UK retail investors found 51% of respondents expect to increase their exposure to the product class versus just 6% who plan to reduce their ESG ETF positions.
Furthermore, an “overwhelming” 88% said they would at least consider investing in ESG ETFs, compared to 9% who said they would not.
Invesco noted levels of enthusiasm were similar across portfolio sizes and levels of investing experience.
Interestingly, ETFs appeared to be the tool of choice for sustainability-conscious investors, with 72% of those investing in ESG using ETFs to do so. Of this group, ESG ETFs account for 38% of their overall portfolios.
Segmenting the ‘E’, ‘S’ and ‘G’, environmental considerations were prioritised by 39% of respondents, followed by governance and social with 28% and 19%, respectively.
Of the range of environmental considerations, 31% named the development of clean energy the most compelling factor, followed by 22% opting for natural resource preservation and biodiversity and 22% for pollution and waste prevention.
On governance and social considerations, 32% prioritised appropriate executive pay and incentives and 32% opted for upholding human rights via preventing exploitative labour practices.
Wealthier investors – with portfolios exceeding £100,000 – had strong biases favouring environmental and governance factors, with 42% and 33% prioritising these metrics, respectively.
Despite a seemingly strong appetite for increased ESG ETF allocations, obstacles remain, with 32% citing a lack of knowledge about the options available as the main hurdle from them increasing their allocations.
Additionally, 36% said they wanted a better understanding of whether their investments were having a positive impact while 34% want confidence that ESG ETFs would outperform other investment options.
Sam Whitehead, head of EMEA ETF ESG product management at Invesco, commented: “The ESG ETF market has grown and innovated to the point where these products can play an important and versatile role in investors’ portfolios, whatever their end goals.
“That said, there remains tremendous potential for growth in the coming years. The most popular reason we encountered for not investing in ESG ETFs was simply a self-confessed lack of understanding – in other words, a clear challenge for our industry to confront.”
Demand for ESG ETFs among UK retail investors mirrors recent activity across European ETFs, Invesco concluded, where nearly half of all flows over the past three years went into products integrating ESG.
ESG ETFs now comprise 19% of assets in European-listed ETFs, up from just 3% at the start of the decade, according to data from Invesco.
