What You Need to Know
- Thirty-four percent of advisors use or recommend ESG strategies to clients in 2022, down from a peak of 38% in 2020.
- Fifteen percent plan to decrease ESG usage in this next year, compared with just 4% in 2021.
- A smaller share of respondents are using or recommending crypto, after a huge jump in 2021.
Financial advisors’ use and recommendation of environmental, social and governance investing strategies may be trending downward, according to a survey released this week by the Journal of Financial Planning and the Financial Planning Association.
The survey, which added questions about ESG in its 2018 iteration, found that 34% of advisors were using or recommending these strategies to clients in 2022, up 2 percentage points from last year, but down from a peak of 38% in 2020.
Twenty-eight percent of advisors said they plan to increase their use of ESG in the next year. At the same time, 15% plan to decrease usage over the same period, compared with just 4% in 2021. Advisor sentiment on the asset class could mean less use by advisors going forward, the study said.
Waning client interest may be fueling this potential shift away from ESG. Thirty-one percent of planners reported that they have fielded client questions about ESG or socially responsible investing in the past six months, down from 39% who said this in 2020 and 2021.
“ESG investing aligns individual principles, purpose and values with the virtuous greater good of the human condition and the Earth,” Preston Cherry, practitioner editor of the Journal of Financial Planning, said in a statement. “Sometimes such missions and esteemed purposes come with higher investment costs and slightly trimmed investing returns.”
Cherry said that if ESG investing has reached an inflection point, several factors may account for this, including higher fees, lower performance, or a lack of ESG impact and index differentiation that inspires investment.
The Journal of Financial Planning and FPA fielded the survey in February and March 2022, and received 413 responses from financial planners who provide or implement investment advice or recommendations for their clients.
Other ESG-Related Findings
A third of planners said they are monitoring research in the ESG space and considering dedicating a portion of their clients’ portfolios to those types of investments over the next one to two years.
Meanwhile, 17% have started looking into ESG strategies, but do not foresee making any investments in the next three years.
Nearly half of advisors said asset managers and portfolio management teams with ESG expertise are the best source of ESG data. But a quarter of survey respondents said they rely on third-party raters to evaluate funds.