Gap between ESG preferences and actual portfolio, Capital Preferences reveals

In a recent report, technology and research firm Capital Preferences has revealed that despite rising demand for sustainable investing, investors are not confident that their current portfolios are aligned with their environmental, social and governance (ESG) values.

For the majority of investors across Singapore, the UK, and the US (55%) there was a mismatch between their ESG preferences and their actual portfolio allocation, according to Capital Preferences.

The report – ESG is Personal: 2021 Study of ESG Preferences and Advisory Practices –collected responses from 908 investors who invest with banks or financial advisers. Responses were collected in August 2021, using an online revealed preferences exercise, followed by a survey. Respondents were distributed between Singapore (301), the UK (303) and the US (304).

The Capital Preferences research revealed that 65% of UK investors rated ESG factors as “Important” or “Very Important” in their investing decisions (Singapore74%; US 65%).

However, only 25% of UK investors were confident that their current portfolio is fully aligned with their values, with 37% and 14% of US and Singaporean investors respectively saying the same.

In addition, 66% of UK investors did not know how they wanted to prioritise each of the environment, social and governance pillars in their portfolio.

Many investors lack the confidence to put their ESG investment preferences into practice due to confusion over ESG terms and concepts, according to Capital Preferences. The report suggests that conflicting ratings, and a lack of guidance on how to identify the right investments in this sector cause this confusion. Moreover, despite their general interest in ESG investing, most UK investors said they did not understand ESG investment strategies such as negative screening (58%), ESG integration (51%), impact investing (51%) or active ownership (51%).

Bernard Del Rey, co-founder and group CEO, Capital Preferences, said, “Many investors intend to invest sustainably, but lack the specific knowledge of how to do so. The key for financial advisers is to equip themselves with enough knowledge and the right diagnostic tools to enable clear, confidence-building conversations that guide investors in accurately identifying their unique ESG preferences.

Pointing to a potential solution, Del Rey added, “We believe that the financial industry can use technology to transform investor profiling and help investors realise performance-driven ESG investing that is more closely aligned to their personal beliefs and preferences.”

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