ESG investing is becoming a key part of clients’ investment decisions, according to findings from Royal London Asset Management’s annual investment conference.

RLAM surveyed nearly 100 wealth managers, financial advisers and institutional clients, and found that over the next three years nearly two thirds (65%) expect to allocate more capital to investment strategies which explicitly take Environmental, Social and Governance (ESG) considerations into account. In addition, over 70% of clients highlighted that ESG issues were now somewhat or very important to them when selecting an investment strategy or fund manager.

The conference also looked at the biggest challenges facing markets during the coming year. Rising interest rates and inflation were front of mind: two fifths (40%) of those assembled saw this as the biggest threat to investors, a big jump from the 26% who went for this option in 2017. A further 12% highlighted the risk of corporate defaults, while 22% pointed to the risk of trade wars.

One other finding was the lower levels of concern about Brexit: while 22% saw it as their biggest threat during 2017, that number had halved to just 11% this year.

The survey also revealed thateEquities remained in favour this year, with over half of advisers (55%) picking this as their preferred asset class, compared to 58% last year.

Just 25% of investors saw bonds, cash or absolute return as their favoured asset class during 2018, again little changed from the 23% who went for one of these options in 2017.

Within the fixed income space, the ‘risk-on’ mood we saw during 2017’s conference remained strong this year, with most advisers favouring multi-asset credit (27%), investment grade credit (23%) or high yield bonds (24%).

When asked about the best opportunity for income, there was particularly strong demand among advisers for equity income, chosen by nearly a third (33%), while a further fifth (22%) of investors preferred a multi-asset approach as the best income opportunity.

Another third suggested that real assets remained the best bet for income generation, with 15% picking commercial property and a further 16% choosing infrastructure.

Royal London Asset Management chief distribution officer commented: “The findings of this survey mirror many of the discussions we’ve been having with clients over the past year, and show that ESG is increasingly becoming an integral part of the investment process for many advisers and institutions. As the sector becomes increasingly competitive, we think that advisers will begin to dig much deeper into what these approaches really mean for the underlying funds.

“The debate is already shifting rapidly from whether a fund simply considers ESG issues, to a more sophisticated discussion about how investment strategies implement these considerations on a practical level. We think that fund management firms have an important role to play in helping advisers get to grips with investing sustainably, and helping them to educate their clients on the tangible benefits that this can provide.”

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