Advisors are cooling on ESG, per FPA report
By Andrew Foerch, June 2, 2022
The number of advisors planning to decrease their use of ESG analysis more than tripled between 2021 and 2022.
More financial advisors are ditching ESG analysis when constructing client portfolios, data from the Financial Planning Association show.
The membership organization’s 2022 ‘Trends in Investing’ report found that 15% of the 413 RIAs that responded to its survey are actively planning to reduce their use or recommendation of ESG analysis over the next year. Compare that to 2021, when just 4% of respondents reported plans to dump ESG.
Additionally, the survey found that advisors are seeing less interest in ESG from clients. Around 31% of respondents said they’ve fielded ESG-related questions from clients in the last six months, a decrease from roughly 39% in 2020 and 2021.
Why is this happening? Preston Cherry, practitioner editor of the Journal of Financial Planning, credits the slightly higher costs and slightly lower returns that can be associated with ESG strategies.
‘If ESG investing has reached an inflection point, it could be due to several factors, including higher fees, lower performance, or a lack of ESG impact and index differentiation that inspires investment,’ Cherry said.