Lucinda Gregory, investment research and guidance manager at The Share Centre, shares her top three products leading the charge in sustainable investment.
The narrative around ESG investing has traditionally focused on the younger generation's potential to influence its transition from niche to mainstream.
Research we recently undertook showed 49% of Gen-Z's and 47% of millennials would be happy to make slightly less profit if the company they invest in is more aligned with their values.
However, recent trading activity from our customers shows older generations also increasingly want to educate themselves on how to make ESG investment decisions and how best to align their investment objectives with their values.
Analysis of our customers' trading activity over the pandemic shows an increase of 107% in the number of trades in ESG funds by Baby Boomer investors.
Likewise, over-75s have increased their exposure to ESG funds, with trades up 14% year-on-year.
The pandemic struck at a time when many were becoming acutely aware of environmental risks from climate change and issues such as rising inequality.
The world's largest environmental and social issues are no longer subjects that are easy to ignore and many are reflecting upon the world they are leaving behind for their children/grandchildren.
This heightened awareness is undoubtedly one of the tailwinds driving the change in sentiment amongst older generations towards responsible investing.
Additionally, investors have turned to ESG during the pandemic in search of income as the crisis has seen traditional income stalwarts cut their dividends.
In contrast, funds focusing on companies involved in renewable energy can tick multiple boxes for investors; providing strong yields but also providing the potential for growth due to their exposure to this structural trend.
A common objective shared by all generations is that aligning investments with values should not come at the expense of portfolio performance, a belief which has historically been held by many.
However, it would appear concerns of sacrificing performance for principles are misplaced, with sustainable funds outperforming conventional funds in the first quarter of 2020. This outperformance is not singular to equities, with green bonds also coming into their own during the pandemic.
Responsible investing has moved on greatly from simply negative screening. Considering ESG factors as part of your core risk considerations simply makes good business sense - with companies who tick these boxes far more likely to be sustainable.
It is worth noting the outperformance of ESG funds displayed during the pandemic is not purely due to strong ESG ratings. Many of these ESG products have a low exposure to energy stocks and high exposure to defensive and resilient sectors such as healthcare and technology, which have fared well during lockdown.
Many believed the coronavirus pandemic would halt the unprecedented momentum of responsible investing witnessed in 2019 but the recent performance of ESG funds has proved the cynics wrong.